TIOL-DDT 670 · the untouched capture
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<p align="justify"><font size="2"><b><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 670</font><font face="Verdana, Arial, Helvetica, sans-serif"><font color="#663399" size="3"><br>
</font>02.08.2007<br>
Thursday</font></b></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Scrutiny of returns - be ready for the shock</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Have you filed your Income Tax return? Do you think it's time to relax? Don't! You may be in for a shock. Your return may be picked up for scrutiny. You won't know why your return has been picked up and you have no right to know. Actually the Income Tax department selects cases for scrutiny through computer Assisted Scrutiny System (CASS). CASS was developed to introduce transparency and eliminate discretion in selection of cases for scrutiny. It also uses third-party information which the department gets from third parties such as banks and mutual funds under annual information return (AIR) to select cases for scrutiny.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Scrutiny of returns helps the income-tax department unearth hidden income and raise more tax revenue. It is an audit of the income-tax returns filed by the taxpayer to assess his real tax liability. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Commissioners can also pick up cases locally for scrutiny based on specific information about an assessee. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Chartered Accountants are happy that there will be more scrutiny this year - more scrutiny means more money - for all the stakeholders!</font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>FMSpeak</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Finance Minister P Chidambaram addressing the University of Hyderabad said that the country must have a basic tax structure that is broad-based and oriented to low tax rates. More FMSPEAK</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ In a demonstration of close cooperation between the Centre and states, the states have introduced the broad-based value-added tax (VAT), replacing the earlier sales taxes. In the same vein, preparations have begun for the introduction of goods and services tax (GST) on April 1, 2010. The GST would integrate central and state taxes on goods and services and would revolutionise indirect taxation in the country by eliminating the distorting features</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ the GST would also improve the efficiency of resource allocation, besides improving the competitive edge vis-a-vis our international competitors, who do not have overbearing taxation at two levels of government and whose burden of indirect taxes is not high as in India.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ the country should not shy away from selecting leading sectors of growth and offering them encouragement.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ the government had in the past provided special dispensation to textiles and steel. Productive activity in both these sectors subsequently took off from a relatively slow or stable rate.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Indirect taxes were also reduced significantly for small automobiles and that sector has done well enough for us to feel confident that India is on its way to becoming a hub for small cars. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The country should continue to seek more such sectors that could contribute exceptionally to its growth rates, and where unutilised potential exists in terms of both resources and well-established skills.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Some promising sectors here are food processing, electronic hardware, leather products, hotels and tourism.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2007/ctariff07_087.htm" target="_blank">Notification No. 87/2007-Cus., Dated July 23, 2007</a></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Annual Statement on Monetary Policy - Q1 review</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">RBI Governor presented the First Quarter Review of for the Year 2007-08.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Highlights</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Bank Rate kept unchanged. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Reverse Repo Rate and Repo Rate under LAF kept unchanged. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Withdrawal of the ceiling of Rs. 3,000 crore on daily reverse repo under the LAF with effect from Monday, August 6, 2007. The Reserve Bank, however, retains the discretion to re-impose a ceiling as appropriate. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The second LAF, conducted between 3.00 p.m. and 3.45 p.m. on a daily basis, is withdrawn with effect from Monday, August 6, 2007. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Cash Reserve Ratio to be increased by 50 basis points to 7.0 per cent with effect from the fortnight beginning August 4, 2007. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ GDP growth projection for 2007-08 retained at around 8.5 per cent, barring domestic or external shocks. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Holding inflation within 5.0 per cent in 2007-08 assumes priority in the policy hierarchy, while reinforcing the medium-term objective to condition policy and perceptions to reduce inflation to 4.0-4.5 per cent on a sustained basis. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ While non-food credit growth has decelerated, the acceleration in money supply and reserve money warrants an appropriate response. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Recent financial market developments in India and potential uncertainties in global markets warrant a higher priority in the policy hierarchy for managing appropriate liquidity conditions at the current juncture. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Barring the emergence of any adverse and unexpected developments in various sectors of the economy and keeping in view the current assessment of the economy including the outlook for inflation, the overall stance of monetary policy in the period ahead will broadly continue to be: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. To reinforce the emphasis on price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment that supports export and investment demand in the economy so as to enable continuation of the growth momentum.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. To re-emphasise credit quality and orderly conditions in financial markets for securing macroeconomic and, in particular, financial stability while simultaneously pursuing greater credit penetration and financial inclusion. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. To respond swiftly with all possible measures as appropriate to the evolving global and domestic situation impinging on inflation expectations, financial stability and the growth momentum.</font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>The Government Accounts - the accountable government?</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Constitution provides for creation of a Consolidated Fund of India, Contingency Fund and Public Account. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All revenues received, loans raised and all moneys received by the Government in repayment of loans are credited to the Consolidated Fund of India and all expenditures of the Government are incurred from this fund. Money can be spent through this fund only if appropriated by the Parliament. The consolidated Fund has further been divided into 'Revenue' and 'Capital' divisions.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All other moneys received by or on behalf of Government are credited to the Public Account.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Contingency Fund enables the Government to meet unforeseen expenditure, which cannot wait approval of the Parliament. For meeting such exigencies, advances are made to the executive from the Contingency Fund which are subsequently reported to the Parliament for recoupment from the Consolidated Fund of India.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">You will be surprised to note the minute detail with which the financial transactions are recorded in the government account books. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All transactions are classified on a six tier functional classification with Major Heads representing a broad function of the Government at the top and an object head representing the activity at the bottom. The intermediate levels represent sub-functions, programmes, schemes and sub-schemes. The functional classification is applicable to receipts as well as payments.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Since the Country follows a Plan based model of economy, the expenditure of Government is divided into Plan and Non-Plan. As the name suggests, the Plan expenditure is directly related to expenditure on schemes and programmes in the plans. The Non-Plan expenditure is the expenditure incurred on establishment and maintenance activities, which is now the major expenditure.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Since the budget is on an annual basis, the accounts have to conform to it. The accounts are maintained on cash basis. Only the actual receipts realised and the payments made during the year are recorded.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In this otherwise perfect world, you have TDS deducted without the PAN of the deductee, you have service Tax credited into all kinds of accounts and the Revenue Departments really do not know how much they collect. In this huge accounting maze, somebody can just walk off with the konkan railways in his pocket!</font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>From our Legal Corner - tomorrow's cases</b></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><b><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_31.gif" alt="Legal Corner Icon" width="191" height="160" hspace="5" border="0" align="left"></b></b></b></font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax</strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Change in method of accounting - Sale-cum-lease back transactions treated as finance transactions - Profits to be deducted from total income for levying tax : ITAT </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">WHEN sale-cum-lease back transactions are treated as finance transactions on account of change in method of accounting, are profits on sale under sale cum lease back transaction to be deducted from total income for purpose of assessment of tax? This was the moot point in this case which was answered in affirmative by the Tribunal. </font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Central Excise</b></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Director of Pvt Ltd Company not filing appeal before Commr(A) against imposition of penalty - appeal by company not sufficient - In absence of such appeal, adjudication order attains finality : Tribunal </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE appellant is a Director of private limited company and show cause notices were issued independently to the company as well as to the director for violation of the provisions of Central Excise law. The adjudication order was passed holding company and the director separately liable for violation of provisions of Central Excise law. The adjudicating authority imposed penalty on the current appellant under the provisions of Rule 209A of the Central Excise Rules, 1944. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While filing an appeal to first appellate authority, the appellant company preferred an appeal, while the current appellant did not file any separate appeal. The appellate authority did not accept the contention of the appellant that it was a joint appeal before him and upheld order-in-original for imposition of penalty on the current appellant. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Bail in economic offence cases - unscrupulous elements on a prowl to maximise material gains by unlawful means, needs to be placed in shackles - By diverting imported non-edible palm oil to ghee industry, he not only caused loss to Revenue but also played with public health - Plea rejected by Delhi HC </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Delhi High Court did not take kindly to economic offences and to add fuel
to the fire there was illicit palm oil clandestinely removed to ghee manufacturers!
The High Court observed,</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Ever growing materialistic outlook setting unscrupulous elements on a prowl to maximise material gains by unlawful means, <b><font color="#663399">needs to be placed in shackles by appropriate legislative measures and judicial intervention</font></b> if the interest of the public at large and the State are to be safeguarded.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Personal liberty of an individual though precious, is of little value if the larger interest of the people and the Nation are at stake.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Period of detention in jail may though continue to be a ground for consideration in deciding the question of grant of bail, societal and/or National interest must outweigh such consideration.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ National interest must reign supreme in all situations and sacrificing individual interest of a person posing threat to it can never be a bad bargain.</font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax </strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Appellate authority has not given any reasoning to set aside penalties imposed u/s 78 of Finance Act, 1994 - Point of limitation can be taken at any time - Matter remanded by Tribunal </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE brief facts of the case are that the respondents are provider of services as "Stock Broker". The respondents got registered and were paying Service Tax on the stock broking activities till June 96. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For reasons best known to the assessee, they stopped paying Service Tax on the brokerage activities during the period July 1996 to August 1997. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u>See our columns tomorrow for the judgements</u></b></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more DDT</font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day.</font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to <a href="mailto:vijaywrite@taxindiaonline.com"></a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
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