INTRODUCTION

Delay in furnishing of Returns of Income by assessees has been a cause of concern for the Legislature and punitive measures have been taken from time to time.  Long back, it was provided that an assessee claiming carry forward of loss sustained in any previous year  under the head “Profits and gains of business or profession” or under the head “capital gains” must furnish his Return of Income within the time allowed under the Act so as to carry forward such losses to subsequent years.  As per the existing provisions of section 80AC in the Income Tax Act, 1961, no deduction is admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, unless the return of income is furnished on or before the due date specified under sub-section (1) of section 139 of the Act. Interest is levied under section 234A of the Act in case of delayed returns.  Section 271F of the Act provided for imposition of penalty in cases of delayed Returns of income.  

As recently as last year, the Finance Act, 2017 inserted section 234F in the Act to provide that a fee for delay in furnishing of return shall be levied for assessment year 2018-19 and onwards in a case where the return is not filed within the due dates specified for filing of return under sub-section (1) of section 139. However, the provisions of section 271F were made not continued beyond the assessment year 2018-19.  

In view of the non-intrusive information-driven approach for improving tax compliance, effective utilization of information in tax administration and the reduced time limits proposed for making of assessment, the Legislature feels that it is important that the returns are filed on time.  So, in the Finance Bill, 2018, additional punitive measures have been proposed to ensure furnishing of returns within due date by the assessees.   

THE AMENDMENT

As stated earlier, the existing provisions contained in the section 80AC of the Act provide that no deduction would be admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, unless the return of income by the assessee is furnished on or before the due date specified under sub-section (1) of section 139 of the Act. However, this burden is not cast upon assesses claiming deductions under several other similar provisions.

The Finance Bill, 2018 now proposes to extend the scope of section 80AC to provide that the benefit of deduction under the heading “C.—Deductions in respect of certain incomes” in Chapter VIA shall not be allowed unless the return of income is filed by the due date. 

This amendment will take effect, from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years.

IMPACT OF THE AMENDMENT

The sub-chapter C of Chapter VI-A contains sections 80HH to 80RRB of the Act and grants deductions in respect of the following:

[*Deduction under these sections was not available under the existing provisions also, in case of delayed returns].  

In order to avail the deductions provided in the above sections, an assessee would be required to furnish his Return of Income within the time allowed.

CONCLUSION

It is worthwhile to note that the deductions under sections 80C to 80GGC, 80TTA and 80U would continue to be available in case of delayed returns and so, many small assessees can breathe a sigh of relief, for the time being.

The outright denial of deduction would cause a severe hardship to many assessees.  An assessee may not be able to furnish his Return of Income within the time allowed due to circumstances beyond his control and he cannot foresee such an eventuality at the time of paying advance tax during the previous year.  In the event of disallowance of deductions for the above reason, it is most likely that there would be shortfall in payment of advance tax by him and so, apart from losing the benefit of deduction resulting into higher tax, he would also be liable to pay interest under sections 234B and 234C of the Act.  

Even a day’s delay in furnishing the Return of Income would attract the punitive provision.  The proposed denial of deduction is a conscious measure but perhaps, the legislature has not taken into account the resultant liability to pay interest for shortfall in payment of advance tax.  The proposed measures are very harsh and very far from assessee-friendly regime.