TIOL-DDT 2603
22 05 2015
Friday

CBEC has observed that sometimes Show Cause Notices have been issued, which become unsustainable in the legal process. Creating such avoidable SCNs not only does become burden on the Government revenue, it also impacts the precious time of Trade & Industry as well as Appellate Authorities/Courts. The National Litigation Policy (NLP) formulated by the Government of India aims to reduce Government litigation so that Government ceases to be a compulsive litigant. The purpose underlying this Policy is to ensure that valuable time of the Courts is spent in resolving pending cases and in bringing down the average pending time in the Courts. To achieve this, the Government should become an 'efficient' and 'responsible' litigant.

Board emphasises:-

i. SCNs should be issued after thorough examination and keeping in mind that grounds given in the SCNs are cogent, sustainable and backed by legal provisions and pronouncements.

In a Communication to the TARC, President of the CESTAT Justice Raghuram observed that show cause notices often record conclusions, instead of allegations.

ii. Pass quality adjudicating orders, which can stand legal scrutiny of the Appellate Authority/Courts.

Justice Raghuram stated that adjudication orders fail to critically appreciate the evidence on record, neutrally consider and analyse defences presented by an assessee and record conclusions rationally resulting from the processed evidentiary matrix and applicable legal principles .

iii. Pass the adjudication orders within the specified time.

What is the specified time? Does any adjudicating authority know?

iv. Judicial discipline should be followed while deciding pending show cause notices/appeals.

If the Adjudicating authorities had any respect for the Supreme Court and the Board more than half the litigation could be liquidated.

v. Instructions issued with regard to the threshold limits for filing appeals before various fora must be applied scrupulously.

To be fair, this is being followed by and large.

vi. There should be proper system of monitoring and handling the litigation at the field level to prevent delays.

Don't you have one, so far?

Board wants the Chief Commissioners to issue the above instructions to their staff for information and guidance.

Do you think the litigation mechanism is in for a major change? Don't expect anything remotely resembling that. As reported in these columns frequently, the field officers have scant respect for the Board and its routine instructions. Many adjudicating authorities openly tell the assessees, "you will surely win in the Tribunal, but I can't give you the benefit."."Let them go to Tribunal", is a favourite mantra of the adjudicator. If the departmental adjudication orders were legal if not fair, half the consultants would have gone out of business.

This kind of letters from the Board will not change the reality; in any case they have been issuing such letters for more than fifty years. The system will change only if there is a reward or punishment.

CBEC Instruction in F.No.275/17/2015-CX.8A., Dated March 11 2015

Litigation Management - CBEC Instructions

CBEC has observed that in many litigation cases pending before various Courts, Government interests are not being defended with adequate diligence. Board suggests to the Chief Commissioners:

(i) Each Commissioner under CBEC should maintain an updated list of cases pending in various Courts.

(ii) Pending cases should be monitored weekly at the level of the Commissioner or Commissioner equivalent officer. Commissioner may, in turn, regularly apprise the Chief Commissioner on the important matters pending before the Courts, and their progress.

(iii) There should be no justification in the ordinary course for the government to seek adjournments. Government Counsels should be advised to ensure that, adjournments are not sought as a matter of routine. Delay entails its own costs, and it also reflects poorly on the efficiency and ability of the Government to respond in time. The number of adjournments sought/obtained on behalf of the Government may be looked into and corrective action taken immediately.

(iv) Every Commissionerate should have a nodal officer of adequate seniority, to act as a coordination point for all Court cases.

(v) The Commissionerate should be in regular touch with all its Counsels and should advise them to use all means of communication including mobile phone applications like SMS, etc after every hearing for indicating the outcome/progress in the matter.

(vi) The Commissionerate may also regularly monitor the cases where the Government interest has not been adequately defended or which have been poorly handled and consequently lost, and send a report to the Board through Chief Commissioner for examination on whether any corrective action is required. The Board, if it considers necessary will send a report to the Ministry of Law and Justice.

(vii) In all cases, where position stated in the past affidavits needs to be modified for various reasons, a review may quickly be undertaken to consider whether additional affidavit is required to be filed.

What is going to happen? A few forests are going to be wiped off. Thousands of copies of this instruction will be printed and distributed among all the officers. What is the Board going to do if these instructions are not followed?

Incidentally a Senior Counsel for the Department recently told me that the Commissioners don't pay his bills and lakhs of rupees are outstanding. Some Commissioners would want the counsels to go and beg them to clear their bills. How will you defend your cases if you don't pay your lawyers? The board should give instructions to the Chief Commissioners to ensure that the lawyers appearing for the department are paid promptly. If you refuse to pay at least the peanuts, you will not get even the monkeys to work for you.

CBEC Instruction in F.No.275/13/2015-CX.8A., Dated March 11 2015

Story of Income Tax Welfare Fund

THE CAG wants the Income Tax Welfare Fund to be wound up. In its latest report to the Parliament, the CAG has found the very constitution of the Fund invalid.

Ministry of Finance, Department of Revenue created the Income Tax Welfare Fund (ITWF) with a corpus of Rs. 100 crore. The Fund was created with the purpose of

(i) promotion of welfare, recreation and other outdoor activities of officials of the Income Tax Department,

(ii) providing financial help to officials during contingencies such as injuries or accidents,

(iii) providing ex-gratia payment to families of deceased officials,

(iv) providing different forms of medical maintenance including risk insurance for emergencies and serious distress to officials not fully reimbursable under CGHS reimbursement rules, and

(v) construction/hiring/leasing/furnishing/ maintenance of holiday homes for the use of officials, etc. The interest accruing on the corpus fund and additional accretions as specified in para 3 of Income Tax Welfare Fund rules 2007 shall be used for meeting the expenditure on the above purposes.

The CAG had not agreed to the creation of the Fund on the grounds that:

1. the activities proposed to be covered by the Fund could be included in the annual budget of the Department and be financed through the normal budgetary process.

2. The utilisation of the Fund would not be reported through the standard object heads as is the case with the demand for grants presented in the Parliament and hence, the process would not be transparent.

3. Further, the General Financial Rules (GFR) also do not permit expenditure from public moneys for the benefit of a section of people or individuals unless the expenditure was in pursuance of recognised policy or customs.

4. Further, if the objective was to cover officials/family members of officials who faced injury/death during search/seizure operations and provision of high risk insurance cover to the officials, provision could be made under a designated scheme of the Government of India or included in the existing provisions of any scheme for such purposes.

5. The other purpose cited could be covered under the standard object heads "Rewards", "Medical treatment", "Office expenses", "Grants-in-aid" in the demand for grants of the Ministry.

The matter was commented upon in the CAG's Audit Report for the year 2008-09, 2010-11, 2011-12 and 2012-13.

The Ministry, in its Action Taken Note of September 2010, stated that the Fund was created after extensive examination in January 1998. It added that the genesis of the creation of the Fund lay in the successful implementation of Voluntary Disclosure of Income Scheme-97 wherein an additional tax collection of about 10,700 crore was made over and above the normal tax collection. The Ministry further stated (June 2014) that the nature of the Fund was clearly brought out in connection with the budget proposals of 1998-99 presented to and agreed to by the Parliament. It also added that in view of the extremely elaborate scheme of accounting devised by Pr. Chief Controller of Accounts in concurrence with the Controller General of Accounts, there was no reason to doubt that utilisation of Fund would not be reported through standard object heads as was the case with the demands for grants presented to the Parliament.

It also drew a parallel with the similar fund available and operated by the Central Board of Excise and Customs. The Ministry also contended that since the fund had been created after extensive examination within the Government with regard to purpose and methodology of such expenditure, there was no justification for the Fund to be wound up. The Ministry clarified (September 2014) that no expenditure had been incurred out of the accumulated corpus of Rs. 100 crore and no interest had been credited into this Fund since its inception.

Audit observed that the CBDT had submitted a "Note for the Cabinet" in April 1998 seeking their approval for setting up ITWF. The Secretary (Revenue) in June 1998 had noted that proposal to create ITWF had been approved by the Cabinet as a part of the budget documents. However, the Secretary (Expenditure) in May 2003 turned down the proposal for want of clear approval of the Cabinet. Subsequently, the proposal was approved by the Secretary (Expenditure) in January 2006 on the grounds that the budget proposals undergo debate and discussions in the Parliament, and hence it was to be taken as tacit approval of the Cabinet. However, there are no records in the CBDT indicating that the approval of the Cabinet in relation to the initial note submitted in April 1998 had come through. In the instant case, the procedure for obtaining the Cabinet approval for setting up of the Fund had been compromised and the stated approval cannot be construed as a categorical approval of the Cabinet.

The underlying purposes for the setting up of the Fund was promotion of staff welfare, recreation and other outdoor activities, to provide different forms of medical maintenance for emergencies, construction/hiring/leasing of holiday homes in places of tourist interest and departmental guest houses, advancement of supplementary loans to officers/staff of the department for construction/hiring of residential complexes etc. The propriety of the above expenditure proposed to be met from the Fund in respect of a section of employees remains questionable since the Government already has separate provisions or schemes for the benefit of all the Central Government Employees and their families, which also include the officers/staff of the Income Tax Department. The estimates of expenditure on proposed welfare measures can be financed through normal budgetary process of the Department by obtaining Parliamentary approval to the estimates under appropriate object heads, relevant to the nature of expenditure, as prescribed under Rule 8 of Delegation of Financial Powers Rules 1978 in the concerned Detailed Demands for Grants of the Department, without taking recourse to financing these expenditure from a designated welfare fund. Additional financial assistance for various items either over and above those provided by the Government under the common applicable rules or on altogether new objects is in violation of the standards of financial propriety. Further, the General Financial Rules also do not permit expenditure from public moneys for the benefit of a section of people or individuals. Mere existence of a Fund of an analogous character in another department is not a basis to constitute similar fund in other departments to incentivise and reward performance.

Audit is of the opinion that there is no need to operate any ITWF in the Public Account and expenditure on welfare activities as contemplated by the department can be met through appropriate object heads and such expenditure can directly be debited to the Consolidated Fund of India if the expenditure fits into the schemes and meets the standards of financial propriety as prescribed in various financial rules.

The ITWF opened in the Public Account may be closed and balance may be credited into the Consolidated Fund of India.

In response, the CBDT stated (December 2014) that the Department after taking into consideration the vetting comments of the Audit, had already submitted a final ATN on the previous para to the Monitoring Cell, Department of Expenditure in June 2014. It further added that the para now proposed by Audit reiterated the earlier observation which had already been considered and replied to in the ATN.

Audit concludes, "The reply of the Ministry, however, does not recognize that Audit at any stage did not concur with the action of the Department to continue with the ITWF. In fact, even in response to the ATN, the vetting comments of Audit clearly advocated closure of the ITWF and crediting the balance available in the said fund into the Consolidated Fund of India, which should be complied with."

Either we should close these funds or create a fund for welfare of auditors.

Customs - New Exchange Rates from Today

CBEC has notified new exchange rates for Imported Goods and for Export Goods with effect from 22nd May 2015. The US Dollar is at 64.30 rupees for imports and 63.250 rupees for exports.

Notification No.47/2015 - Cus.,(N.T.), Dated: May 21, 2015

Income Tax - Draft scheme of the proposed rules for computation of Arm's Length Price (ALP)

Section 92C of the Income Tax Act, 1961 provides for computation of Arm's Length Price (ALP) of an international transaction or specified domestic transaction. The Finance Minister in his Budget speech, while introducing the Finance (No. 2) Bill 2014, had made an announcement that "range concept" for determination of ALP would be introduced in the Indian transfer pricing regime however, the arithmetic mean concept will continue to apply where the number of comparables is inadequate. Further, it was announced that use of multiple year data would be permitted for undertaking comparability analysis. Consequent to the announcement, section 92C (2) of the Act was amended by the Finance (No. 2) Act, 2015 to provide that where more than one price is determined by application of the most appropriate method, the arm's length price in relation to an international transaction or specified domestic transaction undertaken on or after the 1st day of April, 2014 shall be computed in such manner as may be prescribed.

The manner of computation of ALP is proposed to be provided through the amendment of Income-tax Rules. The CBDT has published a Draft Scheme for comments and suggestions from stakeholders.

CBDT F. No. 134/11/2015-TPL., Dated: May 21, 2015

TODAY evening, Justice M B Shah, former Judge of the Supreme Court will release a book on Black Money, Tax Havens & Policy Response written by our Managing Editor Shailendra Kumar, in the presence of top experts in the field including former Supreme Court Judge, Justice Arijit Pasayat, the Azadi Bachao Andolan icon Shiva Kant Jha and former CBDT Member S S Khan.

Until Monday with more DDT

Have a nice weekend.

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