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Karniti Part-19: Kite Fight between Taxpayer & IT Dept

CA Umesh Sharma , Last updated: 15 January 2014  

Arjuna (Fictional Character): Lord Krishna, all are happy and enjoying as two festivals Makar Sankranti and Eid are coming together. Children are busy flying colorful kites in the blue sky. Kites of many people would fly high in the sky and kites of many would get cut. So tell me when the taxpayers kite will get cut under Income Tax Act.

Krishna (Fictional Character): Wow Arjuna! Flying Kites and doing business has many common things. Imagine Kite as Business, String as Law, Thread as Intelligence of Businessman, Kite wheel (Chakri) as Books of Accounts, Wind as Ups and Downs in Market and Sky as Profit / Ambition.

While flying kite one has to be very attentive, otherwise opponent will cut the kite before noticing it. In the same manner if in business one is lethargic (“GIVE DHEEL”) in maintenance of Books of Accounts or in complying Income Tax Rules,then the Income Tax Officer willuse his legal kite string (“MANJA”) to cut the kite and unwillingly taxpayers will have to pay evaded tax and penalty.

Arjuna: What are the consequences of non-filing of Income Tax Return in time?

Krishna: Income Tax Department has already declared due dates for filing of Income Tax Returns for each type of taxpayer. If Return is not filled in time or within one year from the end of Financial Year (for e.g. due date for filing Income tax return for financial Year 12-13 is 30th September 2013 so the return has to be filled on or before 30th September or till March 2014), then Income Tax officer may issue notice to taxpayer. Further, Penalty of Rs. 5,000/- may be levied if return is not filed in time i.e. before March 2014. Therefore returns should be filed in time otherwise Income Tax Officer will fly taxpayers Kite and he may take the kite far away out of his reach. It means if one does not file income tax return then officer may compute income tax with information available with him and compel the taxpayer to pay the same along with penalty. Please also note that, if TDS returns are not filed in time then late fees of Rs. 200/- per day will be levied. If taxpayer faces any difficulty then he may go for appeal. But keep in mind that sharpness of tax rules i.e. “string” may cut taxpayers hand. In short don’t try to take law in hands in such cases.

Arjuna: What happens after filing the Income Tax Return?

Krishna: Maximum taxpayers are now filing returns electronically. After filing Income tax return within time and accurately as per law, the computer system will check the return for arithmetical error and if the return is error free then acceptance of the return will be intimated to the Assessee. Generally Income Tax Department sends “Intimation” to all taxpayers especially to salaried person, small tax payers, etc. Almost all the returns are checked in this manner. It means if taxpayers fly the kite by complying rules and regulations then they will not get entangled in laws thread (Gunta Gunti).

Arjuna: What is meant by Scrutiny of the Income Tax Return?

Krishna: Scrutiny means kite fight (Page / Kata Kati) between taxpayer and officer. The taxpayer shall receive the notice of scrutiny within six months from end of financial year in which return has been filed. For e.g.if Income Tax Return of financial year 2012-13 is submitted on 30th September 2013, then the notice of scrutiny shall be issued before 30th September 2014. During scrutiny the taxpayer will have to produce all the books of accounts and required information to the officer. Further income tax officer can cross check transaction with the other parties. The officer has many powers of verification in scrutiny. Income tax department applies various criteria’s for selection of the case for scrutiny. For e.g. purchase and sale of immovable property above Rs. 30 lakhs, cash receipt or payment in bank above Rs. 10 lakhs, etc. In this era of Information Technology and Right to Information, the department gets confidential information of the taxpayers and changes criteria and selects cases for scrutiny. Just like Kite gets tornout (Pokka) in the air, same is the case with taxpayers return in scrutiny i.e. for tax evasion and for furnishing incomplete information penalty may also be levied. Hence Fly Kite with caution while having kite fight (Scrutiny).

Arjuna: What will happen if coercive proceedings like “Survey” and “Raid” are initiated on the taxpayer i.e. “Sankrant” (crisis) comes on?

Krishna: Arjuna, if taxpayer flies the kite very high with raw thread (i.e. carries on business with unaccounted money) then Income Tax Department takes note of it. It means if income is earned and appropriate tax on it is not paid then department gets confidential information of it. In Today’s business world, business competitor tries to cut the kite of his competitor by passing secret information of competitor to the Income Tax Department. In Survey Tax Officers unexpectedly come at business place and verifies the accounts and levy tax on unaccounted income. Whereas in Raid Tax Officers will visit residential place also and will do investigation deeply of assets and belongings. They can verify records of previous six years and may also seize the property of the taxpayer in case of evasion. Whenever there is increase in tax evasion, department conducts survey and raids. Further, if tax collection budgets of department are not met, such actions are taken. Listen Arjuna, when one loose his kite in kite fight, he needs to collect his string in kite wheel (Chakri) as early as possible (which is called “Dasta”) otherwise it will be grabbed by others. In the same way if tax officer visits unexpectedly at house, office, shop, etc. there is chaos everywhere and undisclosed transactions are caught as there is no time to wind up all the unaccounted receipts, books, records, etc. and his unaccounted income gets grabbed. Further interest and penalty will be recovered of earlier years along with tax, the taxpayer may get exhausted while making arrangement of money. Just like a frustrated kite flier gets exhausted by giving strokes (i.e. Thunkya) to bring the kite high up in the sky when there is no air.

Arjuna: How taxpayer should fly his kite in business life?

Krishna: Arjuna, taxpayer should fly his kite keeping in mind direction of the wind i.e. situation of market. In Kite fight, if string is sharp and strong enough then there are less chances of being defeated. Same is for Income Tax, if taxes are paid appropriately then businessman will not have any fear from the Income Tax Department. In this festive season of Sankranti, one should take care that he doesn’t get entangled in income tax legal fight; otherwise “Sankrant (Crisis)” may arrive on him. Further the tax officers should not misuse their power otherwise it becomes difficult to fly kite to a law abiding taxpayer. Dear Arjuna, one should live life like a kite, a kite faces the wind in opposite direction and rise high in sky, just like that person should always face the crisis and should not run away and thus achieve high goals and touch the success of sky. In this festive season of Makar Sankranti it is said that ”Til Gul Ghya, God God Bola” in Marathi. In the same way tax officer should be strict with taxpayers but should be lenient and encourage taxpayer to pay tax and taxpayer should pay income tax honestly and happily, this is one of the mantra of TAXMANTRA.

Dear Karniti lovers, for more details refer Section 132,133,142,143 and 147. Your comments are always welcome.

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CA Umesh Sharma
Category Income Tax   Report

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