SECTIONS 133 & 142 OF THE INCOME TAX ACT
How much do you spend on Rice & Dal ?
How much do you spend on Rice & Dal ?
If the above question is asked by a neighbor , friend or a relative, you would reply " It's none of your business " . But if income tax authorities ask you ?
Recently it was widely reported in the news media , which became viral in the social media , that the income tax department had sent notices that seek a detailed breakup of expenses, including how much the household spent on atta, rice, dal , gas, shoes, cosmetics, education and haircuts.
Whether Income tax authorities are empowered to seek such information ?
Income tax department can call for such information with the authority derived from sections 133 (6 ) & 142 ( 1) of the income tax act . In fact , there are numerous reports in the news media regarding the Income Tax Department of India seeking detailed information on personal expenses, including grocery expenses. Recent news suggest
Increased Scrutiny:
The Income Tax Department is intensifying its efforts to identify discrepancies between reported income and actual spending. This involves scrutinizing personal expenses, including those on groceries.
News reports highlight that the department is seeking detailed breakdowns of monthly household expenses, which encompass grocery purchases.
Detailed Expense Breakdowns:
Reports indicate that the department is requesting information on the quantity and cost of grocery items, among other household expenditures.
This level of detail has raised concerns about the extent of scrutiny and potential privacy implications.
Reasons for Scrutiny:
The department's actions are aimed at curbing tax evasion by identifying individuals whose spending patterns do not align with their reported income.
The focus is particularly on those with high incomes but low reported bank withdrawals, suggesting potential undeclared cash transactions.
In essence, the Income Tax Department is indeed seeking detailed information on grocery expenses as part of its broader efforts to enhance tax compliance and detect tax evasion
Section 133(6): Power to call for information.
Purpose:
This section grants the Income Tax Department the authority to gather information from any person. This information can be related to any inquiry or proceeding under the Income Tax Act.
It's a broad power used for collecting data, often for verification and investigation purposes.
Section 142(1): Power to make inquiry before assessment.
Purpose:
This section empowers the Assessing Officer (AO) to conduct inquiries before making a formal tax assessment.
It's used when the AO needs further clarification or additional information to determine a taxpayer's income
WHAT RECORDS ONE MAY NEED TO REPLY TO NOTICES ISSUED BY THE INCOME TAX DEPARTMENT ?
When preparing to respond to notices under Section 133(6) or 142(1) of the Income Tax Act, meticulous record-keeping is crucial. Here's a breakdown of the key documents you should maintain:
Core Financial Documents:
Income Tax Returns (ITR):
Maintain copies of all filed ITRs for several assessment years.
Proof of Income:
Salary slips, Form 16 (for salaried individuals).
Business income records, profit and loss statements (for business owners).
Records of income from other sources (e.g., rent, interest).
Bank Statements and Passbooks:
Keep detailed records of all bank transactions.
Investment Proofs:
Documents related to mutual funds, shares, fixed deposits, etc.
Proof of Expenses:
Bills, receipts, invoices for various expenditures.
Specific Expense and Asset Records:
Property Documents:
Rent receipts, property tax receipts, purchase/sale deeds.
Loan Documents:
Loan agreements, EMI payment records.
Insurance Policies:
Life insurance, health insurance policies.
Education Records:
School/college fee receipts.
Medical Records:
Hospital bills, prescriptions.
Travel Records:
Flight/train tickets, hotel bills.
Gift Records:
Gift deeds, donor details.
Important Considerations:
Organization:
Maintain organized records, preferably both physical and digital copies.
Retention:
Keep records for a sufficient period, as specified by income tax regulations.
Accuracy:
Ensure all documents are accurate and reflect your true financial position.
Digital Records:
It is very helpful to maintain digital copies of all records.
By maintaining these documents, you'll be better equipped to respond to any notices from the Income Tax Department and demonstrate compliance with tax laws.
SECTION 133 (6)OF THE INCOME TAX ACT
Section 133(6) of the Income Tax Act, 1961, is a provision that empowers income tax authorities to call for information. Essentially, it allows them to request information from any person that may be useful for any inquiry or proceeding under the Act.
What is the SECTION 133 (6) of the Income Tax act ?
Section 133(6) of the Income Tax Act, 1961, is a provision that empowers income tax authorities to call for information. Essentially, it allows them to request information from any person that may be useful for any inquiry or proceeding under the Act.
SECTION 133 of the Income Tax Act Reads:
133. The Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals) may, for the purposes of this Act,—
(1) require any firm to furnish him with a return of the names and addresses of the partners of the firm and their respective shares;
(2) require any Hindu undivided family to furnish him with a return of the names and addresses of the manager and the members of the family;
(3) require any person whom he has reason to believe to be a trustee, guardian or agent, to furnish him with a return of the names of the persons for or of whom he is trustee, guardian or agent, and of their addresses;
(4) require any assessee to furnish a statement of the names and addresses of all persons to whom he has paid in any previous year rent, interest, commission, royalty or brokerage, or any annuity, not being any annuity taxable under the head "Salaries" amounting to more than one thousand rupees, or such higher amount as may be prescribed, together with particulars of all such payments made;
(5) require any dealer, broker or agent or any person concerned in the management of a stock or commodity exchange to furnish a statement of the names and addresses of all persons to whom he or the exchange has paid any sum in connection with the transfer, whether by way of sale, exchange or otherwise, of assets, or on whose behalf or from whom he or the exchange has received any such sum, together with particulars of all such payments and receipts;
(6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), will be useful for, or relevant to, any enquiry or proceeding under this Act:
Provided that the powers referred to in clause (6), may also be exercised by the Principal Director General or Director-General, the Principal Chief Commissioner or Chief Commissioner, the Principal Director or Director or the Principal Commissioner or Commissioner or the Joint Director or Deputy Director or Assistant Director:
Provided further that the power in respect of an inquiry, in a case where no proceeding is pending, shall not be exercised by any income-tax authority below the rank of Principal Director or Director or Principal Commissioner or Commissioner, other than the Joint Director or Deputy Director or Assistant Director, without the prior approval of the Principal Director or Director or, as the case may be, the Principal Commissioner or Commissioner:
Provided also that for the purposes of an agreement referred to in section 90 or section 90A, an income-tax authority notified under sub-section (2) of section 131 may exercise all the powers conferred under this section, notwithstanding that no proceedings are pending before it or any other income-tax authority.
SECTION 142 ( 1 ) OF INCOME TAX ACT :
This section empowers the Assessing Officer (AO) to conduct inquiries before making a formal tax assessment . It's used when the AO needs further clarification or additional information to determine a taxpayer's income . It specifically relates to the process of assessing a taxpayer's income. It is used when the assessing officer requires further details from the assessee, in order to complete an assessment. It focuses on the assessment process, allowing the AO to seek information directly related to determining tax liability
SECTION 142 ( 1 ) OF INCOME TAX ACT Reads
Inquiry before assessment.
142. (1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 115WD or section 139 or in whose case the time allowed under sub-section (1) of section 139 for furnishing the return has expired a notice requiring him, on a date to be therein specified,—
(i) where such person has not made a return within the time allowed under sub-section (1) of section 139 or before the end of the relevant assessment year, to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or:
Provided that where any notice has been served under this sub-section for the purposes of this clause after the end of the relevant assessment year commencing on or after the 1st day of April, 1990 to a person who has not made a return within the time allowed under sub-section (1) of section 139 or before the end of the relevant assessment year, any such notice issued to him shall be deemed to have been served in accordance with the provisions of this sub-section:
Provided further that a notice under this sub-section for the purposes of this clause may also be served by the prescribed income-tax authority,
(ii) to produce, or cause to be produced, such accounts or documents as the Assessing Officer may require, or
(iii) to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the assessee, whether included in the accounts or not) as the Assessing Officer may require :
Provided that—
(a) the previous approval of the Joint Commissioner shall be obtained before requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts;
(b) the Assessing Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year.
(2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary.
12[(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get either or both of the following, namely:—
(i) to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed, and such other particulars as the Assessing Officer may require;
(ii) to get the inventory valued by a cost accountant, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such inventory valuation in the prescribed form duly signed and verified by such cost accountant and setting forth such particulars, as may be prescribed, and such other particulars as the Assessing Officer may require:
Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited or inventory so valued unless the assessee has been given a reasonable opportunity of being heard.]
(2B) The provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise.
(2C) Every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer:
Provided that the Assessing Officer may, suo motu, or on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section (2A) is received by the assessee.
(2D) The expenses of, and incidental to, any 13[audit or inventory valuation under sub-section (2A) (including the remuneration of the accountant or the cost accountant, as the case may be)] shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner (which determination shall be final) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVII-D for the recovery of arrears of tax :
Provided that where any direction for audit 14[or inventory valuation] under sub-section (2A) is issued by the Assessing Officer on or after the 1st day of June, 2007, the expenses of, and incidental to, 15[such audit or inventory valuation (including the remuneration of the accountant or the cost accountant, as the case may be)] shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with such guidelines as may be prescribed and the expenses so determined shall be paid by the Central Government.
(3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (2) or any audit 16[or inventory valuation] under sub-section (2A) and proposed to be utilised for the purposes of the assessment.
(4) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.
16[Explanation.--For the purposes of this section, "cost accountant" means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of 1959) and who holds a valid certificate of practice under sub-section (1) of section 6 of the said Act.]