VIP Road Chartered Accountants Association

Discharging of Onus/Precautions at Assessment

Introduction

The year 2002 was a surprise or rather a shocking year for all the practising Chartered Accountants and Income-tax professionals for the reason that almost all the tax audit cases were taken up for scrutiny assessment by the department. There has been a revolutionary change in the department with regard to the scrutiny assessment in the sense that all the officers are working round the clock in finalizing the Assessment for the Assessment Year 2001-02 even though the time barring date is 31-3-2004. Thus, the tendency which was earlier to take up the scrutiny assessments at the fag end of the time barring is no more in existence, which is definitely a good sign from both the tax-payer’s and exchequer’s point of view. This revolutionary change shown by the department has to be complimented and at the same time the tax practitioners will have to be expeditious in attending and finalizing the assessments.

The topic allocated to me is of vital importance more particularly in a scenario where there is immediate action for recovery of tax by the department and that there is no more the provision of set aside by the Commissioner Appeals. Therefore, discharging the onus and precautions to be taken before the assessing officer has to be given more weightage.

Issue of Notice and Attendance

As we all know, the first and the foremost step from the Income-tax department is to issue notice for scrutiny assessment and fix the date of hearing. The first date of hearing is often seen to be neglected by the practitioners on the ground that this is just the first notice and no hearing would take place and that there is no point in attending. This in my view is not correct and more particularly with the current revolutionary change in the department. The trend has changed altogether and hence, it is very important to attend on all the occasions of hearing and whenever called for. Even if the officer is not available at the date and time fixed for hearing, it is always advisable to prepare a small letter and file in the "tapal" showing the proof of presence and attendance. This would avoid the issue of penalty notice u/s.271(1)(b) for non-attendance and also help in ex-parte assessment, if made, without giving any further opportunity of hearing.

Co-operation with the department is very essential. Many a times it is noticed that various dates of hearings are fixed for assessment and the same are neglected and/ or only adjournments are taken without furnishing the details called for by the assessing officer. In such circumstances ex-parte assessments are made u/s.144 of the I.T. Act and then grounds are raised before the Appellate stage that proper opportunity of hearing was not given and that the principle of natural justice is violated without having any reasons for not appearing at the assessment stage. This reminds me of the maxim – "Vigilantibus, Non Dormientibus Jura Subveniunt" which means – The law assist those who are vigilant, not those who sleep over their rights. Thus, if a party has not taken the appropriate steps within the time or rather at the right time, he cannot enforce his right at a later time unless he has sufficient reason for not taking the steps. Therefore, it is very important to attend on all the occasions more particularly when the set aside provision is no more in existence.

Submissions and Production of Books, etc.

The second step after the issue of notice is the submissions to be made in response to the questionnaire issued and details called for. Mere attendance and signing of the proceeding sheet do not serve any purpose. Whatever details are called for must be given in writing and not mere orally. It is also advisable to take the signature of the assessing officer on the office copy of the submission filed, since often the submissions are given across the table. If this is not possible, one copy of the submission so filed must also be filed in the "tapal" so that acknowledgement is taken for the proof of filing of the submission. It is also possible that whatever details are filed and submitted, a request should be made to note the same in the proceeding sheet. All this is very useful at the appellate stage if either the proof of filing is demanded or if the records show contrary and in that even the proof of filing would serve the purpose.

Often oral replies and explanations are given without submitting the same in writing. It is advisable that all the discussions, explanations and oral replies are placed on record in writing by filing the same with "tapal" either on the same day of hearing or on the next working day. This helps in rebutting any of the contradictory observations made in the assessing order and the facts would speak of it.

In every subsequent submission, it is advisable to write in brief in the first para as to what had transpired in the last hearing and submission or references of earlier submission be given to place on record of the submissions made earlier.

Wherever production of books of account and other records and documentary evidences are called for and insisted upon, the same should not be avoided. All the books of account should be produced with all the necessary supporting documentary evidences. The proof of production of the books, etc. should be incorporated in the submissions and replies made. It is advisable to place on record and a request be made to note on the proceeding sheet as to what books of account were test checked and documents verified.

All the evidences and details asked for should be filed before the assessing officer so as to avoid the question of filing additional evidence before the appellate authority. Rule 46A is very specific and if the evidences were in the possession of the assessee, it may not be admitted by the appellate authority as additional evidence, unless cogent reasons are given for not having filed the same before the assessing officer.

Filing of confirmatory letters, etc.

One of the common details asked for is the confirmatory letters of the lenders/ shareholders and other parties with whom commercial transactions are undertaken during the year. The details of the same should be furnished alongwith the particulars of name, address and I.T. No., if available. If personal attendance of the lender/ shareholder or other party is insisted, the same should be adhered to. However, often the party does not come forward for appearing before the Income-tax officers. Under these circumstances, if the party does not come forward, the assessing officer must be requested to issue summons and call for the witness u/s.131 of the I.T. Act and enforce the attendance. Without written request, the onus is not discharged of proving the creditors/lenders and hence, all co-operations in the matter must be given to the assessing officer.

Requesting Copies of evidences used against/referred To

Whenever material or evidence is used against for making any addition and the reasons and details are asked for to submit in lieu of the same, the first thing should be to ask for the copies of the material/evidences that are being used so as to know the exact contents of the same and rebut the same. This should also be asked in writing and not mere orally. It is the duty of the assessing officer to give the copies of the material and evidences to be used against the assessee and non-granting of the same violates the principles of natural justice: Kishenchand Chellaram vs. CIT 125 ITR 713 (SC).

After receipt of the material and evidence, once again detailed submission should be made clarifying the factual position and rebutting the material and evidences relied upon.

Especially in search cases, often notice for filing the block return is issued u/s.158BC without furnishing the seized records and the statements recorded. In such cases, it is advisable that before filing of the block return, copies of seized records are asked for and also the statements recorded during the course of search action. This is for the reason that as per the provision of block assessment, filing of revised returns is not allowed and hence, one may not be able to revise the return and at the same time suffer the consequences of penal provisions. Therefore, the first thing should be to ask for the seized documents and statements and also for the extension of time limit for filing the return for the block period. If at all the same is not furnished, file the return with a specific note appended thereto that the same is filed on ad-hoc basis since the copies are not made available. This would atleast help from the consequences of penal provisions.

Copies of statements, retractions and cross-examination

Often statements made by third party are used as evidence against the assessee for making additions, for e.g., for bogus purchases as evident from the statement of the third party that he is involved in issued accommodation bills only. In such situations, statements must be asked for so as to rebut the allegations. All the evidences for proving that the commercial transactions undertaken are genuine must be filed on record alongwith detailed submissions.

Once the copy of statement is received, as far as possible, ask for cross-examination of the said party. It is the duty of the assessing officer to allow cross-examination but only if asked for. Without asking for cross-examination and merely relying on the documentary evidences in possession may not be fruitful at the appellate stage.

In search cases, statements are recorded wherein declarations are made on ad-hoc basis or without going through the seized records. If the same is to be retracted for whatever reasons, the same should be done immediately and not at the assessment or appellate stage and if possible, by way of Affidavit duly notarised. Further, at the time of assessment proceedings, request should be made to once again record the statement by applying provision of section 131 of the Act in order to clarify the factual position. This would reduce the burden of proof and definitely help at the appellate level.

Admissions made at the time Of assessment

In the course of assessment proceedings, admission is made either by the assessee or the authorised representative with regard to the additions/disallowances on the ground to buy peace with the department and thereafter the same additions/disallowances are challenged at the appellate stage. If the additions/disallowances are to be challenged at appellate stage, it is always advisable not to admit the same either in writing or by way of signing the proceeding sheet. This is for the reason that once the additions/disallowances are admitted in the course of assessment proceedings, it is very difficult to challenge the same at the appellate level since the simple argument taken by the department is that when the assessee has himself admitted, he should not be aggrieved by the same.

Deductions/Reliefs not claimed In return

Where return of income is filed and certain claims of deductions/reliefs are overlooked, it is always advisable to make the claim either by filing a revised return or atleast by way of letter alongwith the revised computation of income. This is for the reason that a new claim not made in the return of income may not be admitted at the appellate stage, even though permissible in law and as per the facts of the case.

Alternative claims

If the assessing officer does not allow a claim for deduction on any reason, alternative claim should always be made before the assessing officer without giving up the right of the original claim. For e.g., whether an expenditure is capital or revenue whereby if the expenditure is held to be of capital nature, depreciation should be claimed; income whether from business or capital gains and if treated as business income, the year of taxability may be challenged.

All such claims are necessary to put forth before the assessing officer so that there is no question of admission and/or maintainability of additional ground of appeal before the appellate authorities.

Conclusion

The provision for set aside is no more in existence and hence, the only procedure that the CIT(A) could adopt is of remanding the case. In such a scenario, it would be advisable for the assessees and the authorised representatives to maintain a proceeding sheet of their own so as to record exactly the outcome of each hearing and would also aid in coming to conclusion whether sufficient opportunity was provided. The onus cast upon the assessees should be discharged as far as possible at the assessment stage itself so as to avoid unnecessary hardship and litigation.

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