S. Rajaratnam

Penalty and prosecution provisions are to be made more rigid

CHENNAI: There are many decisions of the Supreme Court, which are proposed to be neutralised. The decision of the Supreme Court in Ishikawajima-Harima Heavy Industries Ltd. v Director of Income-tax, Mumbai (2007) 288 ITR 408 (SC), which required nexus of not mere use but also activity in India for non-resident to be made liable, is now proposed to be neutralised with retrospective effect from June 1, 1976, unsettling the liability of the non-resident and the TDS obligations of the resident.

The Supreme Court in Arun Kumar v Union of India (2006) 286 ITR 89 (SC), held that, unless there is a concession in respect of accommodation provided by the employer, the ad hoc estimate of 10 per cent/7.5 per cent of salary cannot be assessed. It will now stand nullified similarly with retrospective effect from assessment year 2006-07, when this provision in Rule 3 was introduced. This will affect the salary sector.

The decision on burden of proof in P. R. Metrani v CIT (2006) 287 ITR 209 (SC) in search cases as not applicable to regular assessments, which should take into consideration all materials, is nullified for assessment, penalty and prosecution. The purpose of the amendments is incomprehensible.

The requirement of a notice before ordering special audit in Rajesh Kumar v Dy.CIT (2006) 287 ITR 91 (SC) is accepted prospectively, but past omissions are regularised retrospectively.

Another horrendous amendment is to substitute disallowance of payment for cash expenditure including purchases from 20 to 100 per cent, a totally expropriatory proposal.

The Settlement Commission will be less accessible and penalty and prosecution provisions are to be made more rigid. So are TDS provisions barring some marginal concessions. These amendments are all illustrative of what is in store for taxpayers, while providing tax advisors and tax publishers a field day.