Learning from case of Shri Vishwas Udaysingh Lad –Return preparers must be more careful

[CA DEV KUMAR KOTHARI]

Vishwas Udaysingh Lad Versus The Income Tax Department By Its Assistant Commissioner of Income Tax 2016 (4) TMI 220 - KARNATAKA HIGH COURT

About Shri Vishwas Udaysingh Lad:

On search we find that Shri Vishwas Udaysingh Lad is a businessman / industrialist and director in many companies. For example, some information collected about him are as follows:

https://www.zaubacorp.com/director/VISHWAS-UDAYSINGH-LAD/01608878

VISHWAS UDAYSINGH LAD

About VISHWAS UDAYSINGH LAD

Vishwas Udaysingh Lad is registered with Ministry of Corporate Affairs (MCA). Their DIN is 01608878. Following is their current and past directorship holdings.

Company	Designation	Original Date of Appointment
TAHA MINES AND MINERALS PRIVATE LIMITED	Director	22 September 2014
V S L STEELS LIMITED	Director	28 September 2005
V S L Land Developers and Constructions Private Limited	Director	19 September 2011
NESTOR INFOTECH SOLUTIONS PRIVATE LIMITED	Director	05 March 2010
ITONE CONSULTANCY AND TRAINING PRIVATE LIMITED	Director	20 September 2011
Ashwini Capital Advisors Private Limited	Director	25 September 2011

From the contents of facts as stated in the  judgment also we find that he was a partner in many firms, shareholder and director in many companies, besides he also carried business in his personal account. The volumes of businesses, in which he was interested   can thus be visualized as HUGE.

Therefore, it is clear that he must have made reasonable arrangements for tax compliance and relied on concerned persons – considering his size and volumes of operations concerned persons are likely to be experts.

Therefore, it can be said that he relied on experts and considering his size of operations, and operations through many firms and companies, it is not easy for him to personally remember all aspects, even though the amount of impugned deposits may be much large. Another reason is that because he was carrying business personally and through various firms and companies, there is possibility that some transactions can be on behalf of firms and companies.   

The fact that he opened fixed deposits in three different names, case a doubt. However, once he has given his address correctly and the same address in different fixed deposits, such doubt has not much strength.

Another reason to doubt is that when pointed out by the tax department, he disclosed fixed deposits and interest thereon as income.

He has DIN, PAN, and other registrations as may be required. His bank accounts and other major transactions must also have relevant information because without KYC compliance, any account for major transactions cannot be opened. Even a cash deposit of ₹ 50000/- in a regular bank account requires that PAN must be stated in the pay-in-slip.

It is also likely that he has given his PAN to the bank and tax was deducted. This is because any bank will not accept Fixed Deposit, particularly when it is of substantial amount,  without having KYC. It is not clear from details found in the reported judgment, how bank allowed fixed deposit in three names, and whether he has provided his PAN and other details.

If he has not provided his PAN and established his credentials and KYC norms, then the conduct of concerned Bank must also be investigated and action must be taken against erring officers of bank. 

The manner of deposits made for obtaining fixed deposit receipts is also not found. Whether  deposits for FDR were made in cash or by cheques? If FDR were made by cheques, then the source of FDR can be explained and it need not be disclosed as income.

From the reported judgment it appears that the AO made addition only for interest amount, whereas, it also appears as if Mr. Lad has disclosed even principal amount of FDR as income besides interest amount. Therefore, in depth facts need to be enquired/ investigated at end of Mr. Lad and also by tax department and banking authorities.

From judgment it is also not clear  whether information was received from banks based on PAN or not.

In case PAN was disclosed to bank,  then it can be said that Mr. Lad had disclosed correct address and PAN therefore there was no intention to hide the FDR and interest. And it was due to mistake of concerned persons in preparation of ITR.

A very big amount of deposits of about ₹ 10 crore was made with a single bank branch. Therefore, bona fide of Mr. Lad can be established if he had disclosed PAN correctly.

 Interest earned on FDR can be disclosed on receipt basis, therefore, non- disclosure in some of years can be explained.

Not including income in ROI of individual can be due to several reasons  like (a) cash basis adopted (b) income belonging to someone else and he holding deposits and earned interest on behalf of others (a case of diversion at source  of income), (c)  capital receipts (d) temporary deployment of capital funds invested during construction phase etc.

It may be that the FDR was duly accounted for in some of accounts. However, it seems that without making a proper attempt, the amount of FDR was also included in income ( as appears from reading of judgment)

The reason of doubt get some strength because when Income-tax Department pointed out about such income then he declared it as income.

Gross negligence of concerned persons:

It can only be a case of gross negligence of concerned persons  because:

• income tax department must have got information based on PAN from banks / others with whom deposits were made and interest was earned.
• PAN need to be furnished to concerned parties.
• Tax must have been deducted. In case PAN was not provided, then any bank or other party will not accept deposit.
• In case PAN is not provided, higher TDS OF 20% is applicable. Therefore, in any even tax was to be deducted by bank
• While preparing accounts and income statement, in such a large case it is desirable that concerned persons must take care to ensure all physical and cross verifications, confirmations, reconciliations etc.
• Reconciliation with Form 26AS which includes information about TDS, TCS, and also information received by tax department must have been made.If TDS was reconciled such mistake would not have taken place.
• Before finalising, filing/ submitting theROI, reconciliation of income with form 26AS, TDS, income received without TDS or lower TDS, etc. must have been made.
• It is also quite likely that Mr. Lad was wrongly advised to make FDR in different names.

There can be many more reasons for such mistakes. These need to be examined in details.

Factual aspects:

• The Assessing Officer received letter from Director of Income Tax (Intelligence) that the petitioner had made fixed deposit of ₹ 9,62,00,000/- on 29.03.2010 and 27.03.2010 in Tumkur Grain Merchant Co- Operative Bank Limited in its branches at Bangalore.
• There was non-disclosure of fixed deposits of ₹ 9.62 crores and the interest earned on it for three consecutive financial years.

The provision of S. 206AA came into force w.e.f. 01.04.2010 that is assessment year 2010-11 (previous year ending on 31.03.2010).

Therefore, provisions of S.206AA are applicable to the FDR made by Mr. Lad.

^{Section 206AA reads as follows:}

¹[Requirement to furnish Permanent Account Number.

206AA. (1) Notwithstanding anything contained in any other provisions of this Act, any person  entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:-

       (i) at the rate specified in the relevant provision of this Act; or

        (ii) at the rate or rates in force; or

        (iii) at the rate of twenty per cent.

(2) No declaration under sub-section (1) or sub-section (1A) or sub-section (1C) of section 197A shall be valid unless the person furnishes  his Permanent Account Number in such declaration.

(3) In case any declaration becomes invalid under sub-section (2), the deductor shall deduct the tax at source in accordance with the provisions of sub-section (1).

(4) No certificate under section 197 shall be granted unless the application made under that section contains the Permanent Account Number of the applicant.

(5) The deductee shall furnish his Permanent Account Number to the deductor and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other.

(6) Where the Permanent Account Number provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his Permanent Account Number to the deductor and the provisions of sub-section (1) shall apply accordingly.]

²[(7)   xxx   not relevant hence omitted for brevity ********************

Notes:

1. Inserted vide Finance (No.2) Act, 2009, w.e.f. 1-4-2010

Therefore, it is clear that Mr. Lad must have furnished his PAN and it must also be mentioned with all correspondence, deposit slips etc. Otherwise bank (deductor) is required to deduct tax at higher rate that is 20% of interest in this case.

Desirable actions of Bank:

If the Bank has not taken care of KYC, TDS provisions , provisions of S. 206AA, then it is very serious. Author hopes that even small co-operative banks take care of these provisions. 

The Writ petition was not proper remedy:

• From the facts as recorded by honourable High Court, it seems that the case of Mr. Lad is not properly prepared and presented. The home work is incomplete. Facts, have not been investigated. Reasons for non-disclosure are not ascertained.It may be that in hurry and on wrong advice, FDR and interest was declared as income.
• In this case the Magistrate has taken cognizance for the allegedoffences under Sections 276C(1) and 277 of the Income Tax Act, 1961.
• Mr. Lad the petitioner, appeared before the Magistrate,
• the evidence has commenced.
• Therefore, as held by the High Court, if at all the petitioner has to establish his innocence during the course of the trial.
• Therefore, it cannot be said that the continuation of the proceedings would amount to abuse of process of the Court.
• Proper course to be taken was to present case properly before the Magistrate.
• Once matter is taken before the High Court, even observations of High Court can go against Mr. Ladbecause the Magistrate may consider them as binding and he may not be in position to take a different view.