INTERIM BUDGET 2014-15: REALISTIC ? (OR )IDEALISTIC?

When the Finance Minister, Shri P. Chidambaram, rose to present the Interim Budget 2014-15 on Monday, February 17, 2014 the expectations were pragmatic, with some policy direction in terms of the plans to address the current account deficit and the inflationary pressure.

As expected, he reiterated that ‘Fiscal Stability’ continues to be at the top of the agenda and he presented a vote-on-account to enable carrying out regular expenses till the new government assumes office after the general elections. The statistics speak that the fiscal deficit for 2013-14 is contained at 4.6% and foreign exchange reserve are to grow by US$ 15 billion with core inflation down to 3% in January 2014.

There were no changes proposed in the direct tax rates or in the direct tax laws. However, there has been a significant amount of duty cuts on the indirect tax front, of which the key changes have been captured here:

·         The Excise Duty on all goods falling under Chapter 84 & 85 of the Schedule to the Central Excise Tariff Act is reduced from 12% to 10% for the period upto 30.06.2014. The rates would be reviewed at the time of the regular Budget.

·         For the benefit of the Automobile Industry, the excise duty is reduced for the period up to 30.06.2014 from 12% to 8% for small cars, motorcycle, scooters and commercial vehicles; from 30% to 24% for SUVs and from 27/24% to 24/20% for large and mid-segment cars. Appropriate reductions are also proposed in the excise duties on chassis and trailors. The rates would be reviewed at the time of  the regular Budget.

·         For production of mobile handsets, the excise duty rates will be 6% with CENVAT credit or 1% without CENVAT credit.

·         To encourage domestic production of soaps and oleo chemicals, the custom duty structure on non-edible grade industrial oils and its fractions, fatty acids and fatty alcohols are rationalized at 7.5%.

·         To encourage domestic production of specified road construction machinery, the exemption from CVD on similar imported machinery is withdrawn.

·         A concessional custom duty of 5% on capital goods imported by the Bank Note Paper Mill India Private Limited is provided to encourage domestic production of security paper for printing currency notes.

·         The loading and un-loading, packing, storage and warehousing of rice and the services provided by cord blood banks are exempted from Service Tax

The Interim Budget, however, contained nothing about the Direct Taxes Code (‘DTC’) and the Goods and Services Tax (‘GST’) barring an appeal to political parties to resolve to pass the GST and DTC laws in 2014-15.

To sum up, it appears that this Budget is aimed at preventing a downgrade and to boost the general business sentiment, especially targeted at the manufacturing community. It could be said that the major takeaways would be on the defence front, for adopting ‘one rank, one pension’ scheme and the other would be the interest waiver of INR 2,600 crores for nine lakh students. We hope that the Interim Budget can live upto its promise of growth, estimated at 4.9% for the whole year and delivers on the agenda of fiscal stability and inclusive growth for the nation.

S. 119 Condonation of delay should not be rejected on hyper technical ground

Assessee availed Optional Early Retirement Scheme of the employer RBI. RBI while making the payment to the petitioner under the Scheme had deducted as tax at. However, in the return of income for assessment year 2004-05 filed on 15th October, 2004 the petitioner did not claim any refund of tax as TDS paid by RBI on his behalf nor was the credit on tax utilized to discharge tax payable on any other income. On 8th May, 2009 that the CBDT issued a Circular clarifying that the employees of RBI who had opted for early retirement scheme during the year 2004-05 would be entitled for benefit of exemption under Section 10(10C) of the Act. In view of the above the petitioner filed a revised return of income on 8th September, 2011 claiming benefit of exemption available to the Scheme under Section 10(10C) of the Act which consequently would result in refund. However, there was no response to the above revised return of income from the respondent-revenue.

The petitioner in the meantime also filed an application with the Commissioner of Income Tax under Section 119(2) (b) of the Act seeking condonation of delay in filing his application for refund in the form of revised return of income for assessment year 2004-05. The respondent revenue by the impugned order dismissed the application under section 119(2)(b) of the Act on the ground that in view of Instruction No. 13 of 2006 dated 22nd December, 2006 by the CBDT an application claiming refund cannot be entertained if the same is filed beyond the period of 6 years from the end of the assessment year from which the application is made. In the affidavit in reply dated 19th November, 2013 the Commissioner of Income Tax states that he bound by the above instructions issued by the CBDT and consequently the claim for refund cannot be considered.

It was held that the application under Section 119(2)(b) of the Act is being denied by adopting a very hyper technical view that the application for condonation of delay was made beyond 6 years from the date of the end of the assessment year 2004-05 and not disputed the claim of the petitioner for refund on merits. In this case the revised return of income filed on 8th September, 2011 should itself be considered as application for condonation of delay under Section 119(2)(b) of the Act and refund granted. The court latter directed to grant refund due - Devdas Rama Mangalore vs. CIT [2014] 41 taxmann.com 508 (Mumbai).

S. 37(1) Explanation Expenditure on secret commission and free distribution of books

Any secret transaction/payment that is made to secure an unfair advantage, would necessarily be repugnant to law. Transaction which is not transparent, offends normal business practice, must suffer scrutiny. Such unexplained and unvouched expenditure, if allowed, is likely to encourage illegal payments, evasion of tax and unscrupulous practices ushering in at both ends. The expenditure incurred on secret commissions would necessarily fall within the mischief of the Explanation added to Section 37 of the Act.

High Court remitted the case back to the Tribunal for deciding the question of allowability of deduction on secret commissions as also expenditure allegedly made on distribution of free books in the light of Explanation introduced and appended to Section 37(1) of the Act while evaluating and probing evidence of incurring of expenses on both the counts so as to give a finding with regard to reasonableness of such expenditure. – CIT vs. Dhanpat Rai & Sons ITA No. 51 of 1999, Order dated 10-01-2014 (Punjab & Haryana).

S. 276CC Prosecution

Section 276CC applies to situations where an assessee has failed to file a return of income as required under Section 139(1) of the Act or in response to notices issued to the assessee under Section 142 or Section 148 of the Act. The proviso to Section 276CC gives some relief to genuine assessees. The proviso to Section 276CC gives further time till the end of the assessment year to furnish return to avoid prosecution. However the proviso would not apply after detection of the failure to file the return and after a notice under Section 142(1)(i) or 148 of the Act is issued calling for filing of the return of income. Prosecution proceedings could not be held till the culmination of assessment proceedings. The declaration or statement made in the individual returns by partners that the accounts of the firm are not finalized, hence no return has been filed by the firm, will not absolve the firm in filing the ‘statutory return under Section 139(1) of the Act. Further this would not mean that failure to file return was not wilful. It was further held that prosecution of offence, like Section 276CC has to presume the existence of mens rea and it is for the accused to prove the contrary and that too beyond reasonable doubt. – Sasi Enterprises vs. ACIT [2014] 41 taxmann.com 500 (SC).