DTRTI NEWSLETTER Issue No.4/Chennai June 29, 2018

NGO’S VISIT BY NEWLY PROMOTED ACITS DURING OJT

Visit of the newly promoted ACITs to the NGO (Cancer Institute) during their attachment at DTRTI, Chennai. They got to interact with Dr. V. Shanta, a prominent Cancer specialist and the chairperson of Adyar Cancer Institute, Chennai. Her career includes organizing care for cancer patients and research in the prevention and cure of the disease. Her work won several awards, including the Magsaysay Award, Padma Shri, Padma Bhushan, and Padma Vibhushan, the second highest civilian award by Government of India.

CONTENTS

IT World this Week

Officer for the Week Topic for the Week

Judgement for the Week Training network related news Solution to last week’s Puzzle

. - 244 (The wise) say that the evils, which his soul would dread, will never come upon the man who exercises kindness and protects the life (of other creatures).

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IT WORLD THIS WEEK

TWO TIERED PROFITS TAX SYSTEM INTRODUCED IN HONGKONG

Hong Kong introduces two tiered profits tax system

Hong Kong introduced the two-tiered profits system from the assessment year 2018-19 onwards. The key objectives of the Profits Tax bill are to maintain a competitive taxation system to promote economic development, while maintaining a simple and low tax regime.

The introduction of the two-tiered profits tax regime would:

Reduce the overall tax burden on enterprises especially for small and medium enterprises;

Allow enterprises to reinvest the tax savings in upgrading their hardware and software to boost their overall operations and efficiency;

Enable the more successful social enterprises to pursue their social objectives (e.g., creating more employment and training opportunities for the socially disadvantaged) by alleviating their tax burden; and

Boost Hong Kong’s status as the preferred investment jurisdiction.

Two-tiered Profits Tax regime

The two-tiered profits tax regime will apply to both corporations and unincorporated businesses commencing from the year of assessment 2018/19.

(i.e., on or after 1 April 2018).

The applicable tax rates are as follows:

Tax Rate

Assessable profits

Corporations Unincorporated businesses

First HK $ 2 million

8.25% 7.5%

Over HK $ 2 million

16.5% 15%

For corporations, the first HK$2 million of profits earned by a company will be taxed at half the current tax rate (i.e., 8.25%) whilst the remaining profits will continue to be taxed at the existing 16.5% tax rate.

For unincorporated businesses, the first HK$2 million of profits earned will be taxed at half of the current tax rate (i.e., 7.5%) whilst the remaining profits thereafter will be taxed at the existing 15% tax rate.

In order to avoid double benefits, the following enterprises shall be excluded from the two-tiered profits tax regime:

enterprises electing the preferential half-rate tax regimes (e.g., professional reinsurance companies, captive insurance companies, corporate treasury centres and aircraft leasing companies); and

the assessable profits for sums received by or accrued to holders of qualifying debt instruments as interest, gains or profits should already be taxed at half the rate (i.e., 7.5% or 8.25%, as the case may be).

. - 485

The world will constantly embrace the feet of the great king who rules over his subjects with love.

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OFFICER FOR THE WEEK

Hailing from Kollam in Kerala, Shri T.P. Krishnakumar, mastered in Political Science from Kerala University. While at school and college he was an avid Quizzer, Debater and also dabbled in story writing.

His quest for knowledge and wisdom enabled him to acquire a degree in Law besides a Management Degree, in due course.

He had a humble beginning as a Probationary

Officer in the State Bank of India working in the

North East during the turbulent Assam Agitation

period. Later, he joined the Indian Revenue

Service, in 1983. Though working in Government

was strenuous, it also provided opportunities. He

visited the USA for two months in 1992 with a

fellowship and also subsequently earned an MBA

from the UK in 1997 with a sponsorship from the

Government, considered prestigious in the late

1990’s.

During his long stint as an IRS Officer, he has

gained a vast amount of experience living and

serving across all regions - North, South, East and

West. During his tenure, he served in various

capacities in the Department, covering

Assessment, Prosecution, Investigation, Vigilance

and Administration.

Shri T. P. Krishnakumar also finds time to engage

himself in the engrossing hobbies of reading and

vegetable gardening. Presently, he adorns the post

of Chief Commissioner of Income-tax, Coimbatore.

FIVE POSERS TO THE OFFICER 1. What are the 3 important leadership principles you followed which contributed to your success? (a) Lead by example and others will join in the good work being done, as good work is infectious.

(b) Be fair and transparent in your actions as colleagues are humans and your actions have a big effect on their own lives. Fairness and transparency build loyalty both to the leader and to the Organisation. (c) Be an early starter without waiting for any specific commands from those above you. This gives you a head start and helps to achieve the job required to be done. 2. What would you say has been the greatest accomplishment & failure & what you learnt from them? (a) Greatest accomplishment has been to work with equanimity and confidence in all tasks assigned and at all places. Also, to carry along the team with a good work environment, extracting the best of their abilities and shaping them in the process. (b) Work has to be done and it has to appear to be done also as it instils confidence and encourages others to join into a successful venture. May have failed in projecting well done jobs and in networking effectively, which also helps at times in getting work done. 3. What are your suggestions for developing next generation of leadership in the department? Ans. As the economic scenario changes with new elements coming in everyday, continuous updating of skills through exposure to the new business patterns as well as inputs on the tax dimensions of such business activities is so essential. 4. What should be the vision for the department for the next 5 years? Ans. The short term vision should be to develop world class services, rendering what needs to be done for the taxpayer, just as we expect top class services in our dealings with others. Society today is used to competence and minimum hassles in its affairs, also intolerant of incompetence and harassment and governments are committed to giving such services. More important, technical skills for doing the job at hand should be fine tuned with the increased use of technology, enforcement packages available in the market and frequent training. 5. What qualities do you think will make an officer successful in the Department ? Ans. Initiative is the highest virtues an officer can have -- the ability to see and do whatever needs to be done by him, within his assigned tasks, without being prodded by anybody to do it. This also calls for quite some time spent on strategizing and thinking of the tasks at hand, the challenges is in achieving it and the appropriate path ahead.

.- 611

Yield not to the feebleness which says, "this is too difficult to be done"; labour will give the greatness (of mind) which is necessary (to do it)

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TOPIC FOR THE WEEK

AUDIT PROCEDURE

Important changes in approaches to remedial action as per Instruction No.07 /2017

In spite of an earlier instructions the pendency of outstanding objections have not come down

and indiscriminate remedial measures has resulted in frivolous litigations and has caused undue

hardship to tax payers. The new instruction is issued with the twin objective of quick conclusion of

remedial action in cases of accepted audit objections and avoiding remedial action as precautionary

measure where observations are not acceptable. This instruction is issued in supersession of all

existing instructions on this subject.

The PCIT shall inform the program of RAP audit by the Local Audit Party, which is intimated to

him about a month in advance and to the CIT(Audit) to ensure that the Internal Audit of those

assessment units is carried out on priority. At the beginning of audit cycle, the Assessing officer shall

request the LAP to furnish Audit Memo on daily basis as soon as the mistake is observed rather than

handing over all such notes on the last day of audit period. If it is not possible to make available any

particular record requisitioned, the Assessing officer shall communicate the reasons there of to the

LAP in writing with the prior approval of the PCIT concerned.

During the RAP audit AO shall clarify whether the points included in audit mistakes were

pointed out by IAP/SAP and no other action (issue of notice u/s 148 or 154) was taken before the

issue of Audit Query.

1. Standard Operating Procedure (SOP) for handling objections

At the Half Margin Note stage after audit of a particular record, the Local Audit party issues Audit

Memo (Half Margin Note) on any irregularity or mistake observed in individual cases. The Assessing

officer shall categorize the objection raised as

(i) factual mistake or

(ii) legal question, or

(iii) mixed issue, if the objection is not already so categorized by the LAP.

Thereafter the AO should reply to the Half Margin Note (HMN), in all cases in the manner as under

i. Factual objection

If mistake pointed out by the audit is found to be correct, the AO shall initiate / take

appropriate remedial action, within 5 days, and inform the LAP accordingly.

If facts in objection are not found correct, the AO shall give reply to the audit specifying

correct facts.

ii. Legal question or mixed issue-

In case of legal question or mixed issue(s), the AO shall specify as to whether or not, the factual aspect

of the objection is correct and convey the correct facts relating to the factual issue(s) to the LAP. For

the legal question raised as such or in a mixed issue, the Assessing officer may state that the reply would

follow after due examination of the matter. The Assessing officer shall send a status report to the PCIT

as regards mistakes involving legal question / mixed issue.

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2. Local Audit Report (LAR) stage

The Local Audit Report (LAR) is sent to the Assessing officer with a copy to PCIT and

CIT(Audit). The Assessing officer shall enter all the objections in the LAR in 'Revenue Audit' Module of

ITBA (Till online exchange facility becomes operational). The PCIT shall (after calling for the report

from AO and Range head, if needed) take a decision as to, whether or not, the objection is acceptable.

i. Action when objection is acceptable

Where the Revenue Audit objection is accepted, the PCIT shall decide if the relevant order under

audit requires revision u/s 263 as remedial action. If yes, he shall call for the relevant records and

proceed to initiate action u/s 263. If not, the PCIT shall communicate his decision not to invoke section

263 to the Assessing Officer.

The AO shall examine the facts of each case and take a suitable action as per his independent

application of mind on the facts of each case. In case the Assessing Officer decides to choose section

154 as the appropriate remedial measure, he shall initiate the action after approval of the Range head.

The remedial action in case of accepted audit objection shall be initiated within three months.

ii. Action when objection is not acceptable

Where the audit objection is not accepted, the PCIT shall send a reply to CAG officer specifying

reasons for non-acceptance of objection within two months of receiving LAR with a copy marked to

the CIT(Audit). Where the view of PCIT is accepted, the objection will be dropped and no further

action would be required.

3. Disagreement

i. Where the view of PCIT is not accepted: A rejoinder will be received from concerned CAG

officer with reasons for disagreement, the PCIT shall first get the contents of rejoinder entered in ITBA

system. He shall then reconsider the objection in the light of points raised in the CAG rejoinder. If PCIT

agrees with the views of the ITRA then remedial action shall be taken as discussed above.

ii. Further Disagreement : Where the PCIT is still of the view that objection is not acceptable, he

shall take up such cases of disagreement, in inter-departmental meeting with Director General of

Audit or Principal Director of Audit (Central), along with cases where there is no response to PCIT's

replies from the CAG officer after lapse of two months. The CIT(Audit) shall also be invited to the

meeting and detailed 'Minutes of the Meeting' shall be recorded and sent to all concerned. However

no remedial action shall be initiated in respect of objections not accepted by PCIT even after

discussion in meeting.

iii. Unresolved cases: Where an objection remains unresolved the PCIT shall enter in ITBA

system, the outcome of meeting referred above, as per minutes recorded. In such cases the ADG

(Audit) shall take up the matter in the headquarter office of C&AG and hold meeting with the Principal

Director of Audit (Direct Taxes) to discuss the objections remaining unresolved at field level.

4. Draft Para stage

Where Statement of Facts (SOF) proposing to include an objection as draft para in audit report is

received, the PCIT shall examine irrespective of whether or not, the audit objection was accepted

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from factual & legal perspective and send appropriate reply including present status of appeal etc, to

the concerned CAG officer within a fortnight of the receipt thereof.

The PCIT shall upload particulars and the CCIT shall insert comments in ITBA system within 6 weeks

from its receipt to enable the Board to submit reply to the C&AG of India.

5. Accepted objections-

In case the draft para relates to an objection that has been accepted, report in Proforma-B shall also be

similarly uploaded. A copy of the report shall be marked to the ADG (Audit) for preparation of the

Action Taken Note (ATN)

6. Appeal to ITAT in cases involving audit objection

The appeal to ITAT shall be filed only if the appeal order is not acceptable on merits.

7. Reporting system:

All work including correspondence regarding revenue audit shall be done through ITBA system. The

statistical and other reports, as may be required, shall be generated from the ITBA system itself.

8. Calling for Explanation of officers:

Where the Major Revenue Audit Objection has been accepted, the PCIT may call for explanation of

Officer/staff concerned in appropriate cases, keeping in view the nature of objection and facts of the

case, and take suitable action as deemed appropriate. The PCIT may also call for explanation of the

officers who delayed the process of remedial action beyond the time line laid down in this instruction

and of those who failed to take remedial action in cases of accepted audit objection in time, causing

irretrievable loss of revenue.

Where a Major Revenue Audit Objection has been accepted by the department in a case which was

audited by the internal audit earlier and such objection was not pointed out by the Internal Audit

Officer, the CIT (Audit) may call for explanation of such Internal Audit Officer in appropriate cases and

may take suitable action as deemed fit. Any officer / staff whose explanation has been called for as

above shall furnish explanation through ITBA system.

9. Ledger Cards

The ledger card in respect of erring assessing officers shall be maintained on the I TBA system and

would be available to supervisory officers till the system is fully functional, the ledger card will

continue to be maintained in the offices of the PCI T concerned as well as the CIT(Audit) . When the

Audit Module of ITBA becomes functional, entire work flow of audit, including all correspondence,

shall be through ITBA system. The correspondence with C&AG official, if received in physical form,

shall be entered in the system by the authority concerned.

DTRTI note: The write up is only a synopsis. The reader may peruse the instructions for better clarity

while taking action in this area.

.- 673

Whenever it is possible (to overcome your enemy) the act (of fighting) is certainly good; if not, endeavour to employ

some more successful method.

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JUDGEMENT FOR THE WEEK

Delhi District Court convicts assessee & directors u/s 276C/D, penalty deletion on technical ground is not a savior. Delhi District Court convicts assessee-company and its directors u/s. 276C / 276D for willful attempt to evade tax by underreporting of income; Rejects assessee’s stand that since penalty u/s. 271(1)(c) was deleted by ITAT in adjudication proceedings, the prosecution cannot be sustained against it; Court observes that the deletion of penalty by ITAT was not on merits but was on technical ground of non-striking off of the words ‘concealment/ inaccurate particulars of income’ in the assessment order; Further, Court observes that even after deletion of penalty by ITAT, the assessment was not set-aside, moreover, the assessee did not claim that the income added by AO was incorrect but only took that stand of penalty being deleted; Thus, Court concludes that “since the deletion of penalty was not on merits, the prosecution shall continue in the present matter.”, relies on SC ruling in Radheyshyam Kejriwal dealing with the implication of adjudication proceedings on the criminal prosecution.

QUESTIONS CORNER – FAQs ON ITBA (INPUTS FROM MSTU)

Q 1. What is the procedure for AO to update the hearing/case noting when the assessee is not responding to the hearing notices issued during the course of assessment? A 1. In such a circumstance, AO can mark the hearing status in the assessment proceedings as “Did not appear” and can block the e-response of the assessee by marking “Block e-response” in case-noting screen. Q 2. What happens if the assessee files a e-nivaran petition selecting the wrong jurisdiction?

A 2. In case if the grievance petition is received in non-PAN jurisdiction, the AO can transfer the case to the respective PAN jurisdiction officer through the work flow – E-nivaran worklist – transfer – select the destination AO – give remark – transfer. Q 3. Till what period can the assessee file the e-response during the e-assessment proceedings? A 3. E-response option will be blocked for the assessee 7 days prior to time barring date. Alternatively, the AO has the option to block e-response once the final hearing has concluded.

TRAINING NETWORK RELATED NEWS

1. A team of 27 newly promoted officers have been attached to DTRTI, Chennai, for OJT. After hands-on-training at Intl. Taxation & TP on the first day, they were taken on a NGO visit to the Cancer Institute, Adyar, Village visit to Adigathur and Industrial visit to Ford India. Hands-on-training was also arranged at Investigation Wing and the Central Charge.

.- 724 (Ministers) should agreeably set forth their acquirements before the learned and acquire more (knowledge) from their superiors.

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Industrial visit to Chennai Ford

2. Our team from DTRTI headed by Shri Krishnamurthy, ITO, had visited Trivandrum for a door step training session there.

A 2 days program was conducted on reassessment procedure digital forensics, prosecution, compounding and NFRS.

SOLUTION TO LAST WEEK’S CROSSWORD

O C A C H E M

R H D A

D I G I T A L E V I D E N C E

I G I L B

S I N A E H I

K N O U T A T

C A F D E C S

A P P L I C A T I O N K T

C H U T D I R

H I S E C T O R O N E

E S T R W G A

H S P O L I A T I O N M

Z I P P E D I L

N A Y L C O O K I E

G C A

E A C T I V E D A T A

The Officers and members of staff may send in their queries on technical issues to

chennai.adg.dtrti@incometax.gov.in. The questions will be answered by experts in the field of query.

The 3 best queries will be published in the next edition for the benefit of all.

- 725 In order to reply fearlessly before a foreign court, (ministers) should learn logic according to the rules.

Published by: Team DTRTI, Chennai