Political parties must file returns

CHAT ROOM

What is the liability of a political party in the matter of compliance to the provisions of the Income Tax Act?

Section 139(4B) requires every chief executive officer of a political party to file return of income if the total income of such political party exceeds the non-taxable limit.

Total income means total income as computed according to provisions of the Act without giving effect to the provision of Section 13A.

Section 13A deals with exemption to political parties in respect of income from house property, income from other sources, capital gains or any income by way of voluntary contribution. Explanation to Section 13A provides meaning of political party.

Accordingly, a "political party" means an association or body of individuals being citizens of India registered with the Election Commission of India as a political party under paragraph 3 of the Election Symbols (Reservation and Allotment) Order, 1968 and includes a political party deemed to be registered with that commission under the provision to sub-paragraph (2) of that paragraph.

Failure to comply with the provision relating to filing or returns mentioned above can lead to imposition of penalty, interest and also prosecution.

Kindly mention the law with regard to filing of returns, where assessees suffer losses.

In the Orissa Metal Industries (P) Ltd case, (1992) 196 ITR 803 (Orissa), the assessee had filed voluntary return of loss beyond the date specified under Section 139(1). It was held that such return could be taken to have been filed under Section 139(4) thus entitling the assessee to carry forward unabsorbed losses.

But after an amendment to Sections 80 and 139(3), even where a return is filed within the time allowed under Section 139(4), the assessee will not be entitled to have the loss determined on such return and have it carried forward if such return is not filed within the due dates mentioned in Section 139(1).

We are civil engineering contractors, operating in several states. We employ labour contractors and sub-contractors. Our association with them is only short-lived, during the period of the contract.

Once the contract is completed, our contact with them comes to an end. These parties have virtual monopoly in their areas, and often dictate terms, which we are forced to follows.

Our turnover has been far above the limited prescribed under Section 44AD. The rate of profit has always been more than our competitors, for which we do not indulge in any overt or covert avoidance or evasion of tax. Most of the labour and sub-contractors are uneducated, who do not issue any bills.

Thus hundred per cent evidencing the expenditure is impossible. Payments above Rs 20,000 are made by crossed cheques. The income-tax department insists on that we produce these parties personally during the assessment proceedings.

Since our contact after the completion of the contract is lost, and we do not have any physical control over the parties and we are unable to ensure their physical presence during the proceedings.

The department always turns down our request to issue summons to these parties. Instead, we are penalised by disallowing a considerable part of the payment to sub-contractors and labour contractors. Is there any remedy to this situation?

The income-tax department has to be reasonable in its approach and cannot expect a taxpayer to prove all payments made when, considering the situation mentioned, it is not possible to do so.

An overall view of an assessee's business and accounts has to be taken, and if the taxpayer is showing progressive results and the profits shown not only compare well with those shown by others in the similar line of business but are better than those, the credibility of the assessee's version of profit has to be given due regard, more so when the assessment officer is not able to find any fault with the accounts and the vouchers produced. Such unreasonable attitude make an honest taxpayer resort of tax avoidance by unethical means.

Legally also, the assessment officer's stand does not seem correct. In Righmens Construction Co vs Income Tax Office, (1996) 131 Taxation 123 (Delhi-Tribunal), it was decided that disallowance of labour expenses was not justified as assesse was maintaining regular books of account, including wages register and vouchers and there was no defect in them.

If the assessee has maintained regular books of accounts, including wages register and vouchers, in which no defect is found by the assessment officer, there is no justification to disallow part of the wages on the basis of mere estimate.

Hence, additions made by the assessment officer should be contested in appeal before the commissioner of income tax (appeals) and the officer, being more mature and experienced person, should be able to appreciate the situation in the queriest's case and give relief in regard to the unwarranted additions made by the assessment officer.

For the assessment year 2001-02, our case was taken up for scrutiny and thoroughly looked into by the assessment officer. All our transactions of purchase, sale and expenses are supported by vouchers.

The assessment officer could not find any defect either in the accounts or in the profit shown. Still he has made an addition of Rs 75,000 to the declared result on a lump sum basis mentioning some superficial issues like wrong mention of dates in some bills. Is this addition justified?

Lump sum addition in the declared gross profit does not seem justified on fact and circumstances of the case.

The assessment officer has failed to point out any specific mistake or discrepancy in the account maintained by the assessee and, therefore, there is no justification in making any lump sum addition in the declared trading, particularly in a case where the entire purchasers and sales are supported by vouchers and regular books of accounts (See Commissioner of Income Tax vs Prakash Textiles Associates case, (1996) 54 TTJ (Ahmedabad-Tribunal) 531).