Let us
assume for a moment that today is 31/07/2013—the last date for salaried
employees like Mr. Sinha to file their income tax returns.
Mr. Sinha is
a typical salaried employee in a senior position with an Indian conglomerate.
He diligently files his returns and pays income tax due on his income.
Mr. Sinha is
relaxed and satisfied that today he has fulfilled his duty of duly filing his income
tax return having submitted the Form 16 to the agency appointed by his
employer for bulk filing of tax returns. He is not averse to paying the tax on
his income (from salary) and believes that since the tax due on his salary is
being deducted by way of TDS, filing the return is just a formality.
Mr. Sinha
was surprised to receive a demand notice from the income tax department. There
was a difference in the total income as disclosed in the return and Form 26 AS
(Annual statement of TDS) as compiled by the income tax department.
He
approached us with all the relevant papers and requested us to reconcile the
difference.
Upon
scrutinizing the papers furnished to us, we discovered that the difference in
income was on account of
·
Interest earned
on bank fixed deposits; and
·
Capital
gains on mutual fund investments and dealing in shares
The interest
income along with capital gains(long term or short term) should have been
separately reflected in the return and gross taxable income been calculated
thereafter.
Since, Mr.
Sinha travels extensively on office work; he chose to file his income tax
returns through the agency appointed by his office which was convenient--and
not through a personal financial and/or tax advisor for his taxation matters.
Mr. Sinha
argued that bank had deducted TDS @10% just like his employer. We pointed out
that since Mr. Sinha was subject to 30% tax bracket, the tax department was
well within its right to send a demand notice.
We would
like to point out here the penal provisions under the Income Tax Act. The income
tax officer is empowered to levy a penalty of a minimum of 100% of the tax
sought to be evaded and it can go as high as 300%. Mr. Sinha is not only liable
to pay tax on income which was not reported—even though inadvertently—but also pays
an equivalent amount more as penalties.
The penalty
provisions can however only be invoked if the ITO is of the opinion that the
assessee had furnished inaccurate particulars or concealed details of other
income in his returns.
It is the
duty of the assessee to record all transactions during a financial year so that
true income can be declared in the returns every year. In absence of this, the
income tax department is well within its right to levy such penalties as it
deems fit.
