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It is not exactly easy to deal with tax authorities. From the middle-class tax payer to big businesses, many find themselves under scrutiny from the department for various reasons. The Income-Tax Settlement Commission has been set up for exactly this purpose - to ensure that both the tax department and tax payer come to the negotiating table.
S R Wadhwa, a Delhi-based advocate and former chairman of the Income Tax Settlement Commission (ITSC), recalls a businessman who had paid government servants to obtain orders and approvals. "When he approached the Commission, we saw that the gentleman had taken tax deductions for the bribe he had paid. He had shown the bribe as commission in his books of accounts," says Wadhwa, without naming the person. Since tax deductions cannot be claimed on commissions/bribes, no deduction was granted. Another senior official official with the Commission describes its role with:"The commission's role is to ensure that neither party loses."
However, it is just a one-time benefit each payer gets through his entire tax filing period. So, use this opportunity well. To qualify for such settlement, there are conditions. One, the case should be a pending one. Two, the amount in question should be a minimum of Rs 10 lakh for the main company or individual. It can be Rs 50 lakh for secondary or group companies or individuals and in 'search and seizure' cases. In addition, the assessee has to pay the entire disputed tax and interest amount due to the I-T department before he approaches the Commission.
Once the assessee approaches the Commission, it decides within 14 days whether to admit the case or not. Once admitted, it can take up to 18 months to be resolved. "Given that litigation and courts take years to resolve such issues, many people are beginning to approach the Commission. In this quarter, we received over 200 cases in the western region. On a national scale, the numbers would be much higher," says the senior official.
Recently, Congress party spokesperson and Rajya Sabha member Abhishek Manu Singhvi reportedly moved the ITSC, seeking immunity from penalty and prosecution. According to reports, Singhvi's additional income had not been shown in his returns due to a computation error. Singhvi disclosed undeclared income of around Rs 11 crore and paid Rs 3.26 crore as tax on the amount after receiving notices from the department about his returns. The department is reportedly not in agreement with the additional income disclosed by Singhvi; its own estimate is much higher.
"One of the major advantages perceived by taxpayers is the Settlement Commission's power to grant immunity from penalty and prosecution under the I-T Act. Also, there is fast-tracked finality to the proceedings, as once validly passed, its order becomes final and conclusive," says Ashvin Parekh, partner, Ernst & Young. The penalty levied under the I-T Act can be 100 to 300 per cent of the additional income tax, along with interest.
While the Commission can take as much as 18 months to resolve the issue, the interesting part is that during the time the case is with it, there is no more interest payment to be made by the assessee. However, if at a later date it is known that the payer had made a false disclosure to the ITSC, then it can go back on its order. "The Commission is empowered to declare its own order void. The consequences of any such declaration would also mean that immunity granted for penalty and prosecution is withdrawn," says Parekh.
In some cases, there are refunds as well. Anuj B Golecha, partner at Mumbai-based chartered accountancy firm Banshi Jain & Associates, explains that the application for settlement should be filed in the prescribed Form 34B. The application can be made personally (by either the applicant or authorised representative) or by registered post (addressed to the secretary of the ITSC bench concerned). It should be accompanied by proof of payment of additional tax and interest, chargeable till the date of admission of the application. There are other procedural requirements, such as payment of prescribed fees (Rs 500) and intimating the jurisdictional I-T assessing officer on the application to the ITSC.
If the application is not rejected by the Commission within 14 days, it is deemed to have been admitted by it. The Commission can reject the application, if not satisfied that the assessee has made a full and true disclosure, and on the source of the income or if the other requirements haven't been met. Someone whose application has been rejected can still file another application for settlement, says Golecha. For a taxpayer, who feels wronged, this is a good option. However, assess your decision before approaching the Commission, as this route is available only once in a lifetime.
In your favour:
- Assessee gets penalty waiver and immunity from prosecution
- The order passed by ITSC is seldom disputed
- I-T department cannot issue a notice for the period and income covered by the ITSC order, except in the case of fraud / misrepresentation
- ITSC settles assessee's tax, penalty and interest liability for the year(s)
- Settlement at ITSC is much faster (18 months) than going to courts
- The Commission makes or authorises only enquiries limited to the purpose of the settlement
- Settlement proceedings are not open to public; assessee is not inhibited in disclosing relevant details
Goes against you:
- It is a one-time benefit. Approach ITSC only when you are sure about coming clean and won't need it ever again
- ITSC can declare its order void if assessee is found to misrepresent facts
- You have to pay the entire tax amount and interest before ITSC takes up the case
- There are chances that your case will not be admitted despite having paid the tax and interest
- If the case is dismissed, the I-T department can use all the information produced before ITSC for court proceedings
Fulfil these conditions:
- Can approach only if the additional tax to be paid is over Rs 10 lakh
- The additional tax amount should be Rs 50 lakh or more in 'search and seizure' cases
- Only a case pending before an I-T officer is eligible to be admitted
- The statutory time limit for passing the assessment order should not have lapsed
- The assessee should have filed returns and can apply even without any scrutiny notice
- Approach ITSC only if you have not made another application after June 1, 200
