Not filing income tax returns will cost you dearly as ex-parte assessment proceedings can be troublesome

The Central Board of Direct Taxes (CBDT) on 22 January 2019 had urged non-filers of income tax returns for the assessment year 2018-19 to file their returns within 21 days.

It has a non-filers monitoring system software which keeps a hawkish eye on high value transactions like registration of immovable properties valued at Rs 30 lakh or above. Sub-registrars are obliged to report such transactions by 31 August of the assessment year. Investments in mutual funds in excess of Rs 2 lakh is another tipping point.

The CBDT is aware that despite indulging in high value transactions, there may not be any taxable income to warrant filing of return. To wit, it is possible that a person who has just hung his boots after 30 years of distinguished service and is not having any taxable income post-retirement might choose to buy a flat valued at Rs 1 crore from his retirement funds after two years following his retirement.

Not filing income tax returns will cost you dearly as ex-parte assessment proceedings can be troublesome

Representational image. Reuters

Now he cannot be faulted for not filing his return. Nor does the CBDT compel him to file one. All that it says is if a notice is stuck up on one’s income tax account which can be accessed by logging in by mentioning one’s permanent account n​umber (PAN) and other details, he can just give an online reply saying why he didn’t file a return.

But then one might wonder why 21 days when one has time to file return till the end of the assessment year which for 2018-19 is 31 March 2019. Section 234F after all permits one to file by that date by way of belated return provided it is accompanied by a fee of Rs 10,000 for delay beyond 31 December of the relevant assessment year. The only logical explanation is that the CBDT is in a mood to crack the whip on non-filers by asking the assessing officers to carry out ex-parte assessment quickly as they can under Section 144.

Under Section 144, the assessing officer can carry out ex-parte or one-sided assessment after serving a notice on the non-filer or non-cooperator. Strictly speaking, this process can be set in motion on 1 August of the assessment year itself on those who have to file their returns on or before 31 July of the assessment year.

To be sure, one can file a belated return by the end of the assessment year but that does not tie the hands of the assessing officer. The right to file a belated return before the expiry of the assessment year under Section 139(4) is hemmed in by a condition — meanwhile the assessing officer should not have initiated the ex-parte assessment proceedings. Thus one cannot cunningly foist a belated return after getting wind of the ex-parte proceedings initiated with a view to halting such proceedings in its tracks.

Thus in the above example if the person who has bought a flat for Rs 1 crore neither files a return nor gives a satisfactory explanation for not doing so, the ex-parte assessment stares him in the face. The assessing officer can assume that the entire amount of Rs 1 crore was his taxable income and proceed to issue a demand notice accordingly.

Of course this person can file an appeal to the commissioner (appeals) under Section 246A or to the administrative commissioner under Section 264 against the order prejudicial to his interests. But the commissioners are not going to intervene unless the assessing officer has been capricious in his assumptions.

Ditto for a trader who is shown by the Goods and Service Tax Network (GSTN) portal to have recorded a turnover of Rs 20 crore and yet he has not filed his income tax return by the due date. If he is selling cement and the dealer net margin is found out to be 10 percent, the assessing officer would be justified in completing the ex-parte assessment calling him upon to pay income tax on Rs 20 crore of his business income.

(The writer is a senior columnist and tweets @smurlidharan)

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Updated Date: Jan 24, 2019 12:11:20 IST

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