Special provisions for Conducting TDS/TCS Survey [Section 133A(2A)]
§ There were no specific
provisions for TDS/ TCS survey in the Income-tax Act till 2014.
§ Verification of TDS/ TCS
was earlier done by regular surveys under section 133A(1) of the Act.
§ Section 133A(2A) has
been introduced by the Finance (No. 2) Act, 2014 with effect from 01.10.2014,
which only entitles the income-tax authorities to conduct survey in regard to
TDS proceedings.
§ TDS surveys have been
found to be very effective in detecting non-deduction or short deduction of tax
at source, or in identifying cases where deduction was made but tax was not
deposited with the government.
§ Authority having
jurisdiction as to the Tax deduction at source matters, has the power to
conduct survey.
Power
to authorize survey operations under section 133A [Proviso to section 133A(6)
No action under section 133A shall be taken by an income-tax
authority [i.e. a Principal Commissioner or Commissioner, a Principal Director
or Director, a Joint Commissioner or Joint Director, an Assistant Director or a
Deputy Director or an Assessing Officer, or a Tax Recovery Officer; and an
Inspector of Income-tax, for the purposes of clause (i) of sub-section (1),
clause (i) of sub-section (3) and sub-section (5)] without obtaining the
approval of the Principal Director General or the Director General or the
Principal Chief Commissioner or the Chief Commissioner, as the case may be.
Explanation.
- In this section, -
(a) “income-tax authority” means -
(ii) includes an Inspector of Income-tax, for
the purposes of clause (i) of sub-section (1), clause (i) of sub-section (3)
and sub-section (5),
who is subordinate to the Principal Director General or the Director General or
the Principal Chief Commissioner or the Chief Commissioner, as may be specified
by the Board;
CBDT specifies authorities
for approving & monitoring Survey [CBDT Order No. 267 dated 22.11.2022]
§
Authorisation
for conducting survey shall be issued by JDIT/JCIT with the prior approval of
DGIT/CCIT in case of : (i) Directorate of Investigation, (ii) Directorate of
Intelligence & Criminal Investigation, (iii) Central Charges and (iv) TDS
Charges;
§
Where TDS charge is headed by the Principal Chief Commissioner, approval
shall be granted by the Principal Chief Commissioner.
§
Concerned Pr.CIT/ CIT/ Pr.DIT/ DIT shall
monitor and ensure that survey is conducted in accordance with the statutory
provisions along with the guidelines and instructions issued by CBDT from time
to time.
§
Pr.
DGIT/ DGIT/ Pr.CCIT/ CCIT for exercising powers and functions under Section
133A to be exercised by their subordinates in territorial areas or persons or
incomes assigned to them under Section 120
§
CBDT
clarifies that the specification does not extend to the authorities exercising
powers and functions under Section 144B i.e. Faceless Assessment, and Faceless
Penalty (Amendment) Scheme, 2022.
Purpose
of survey
(i)
Information gathered during the course
of surveys/verification regarding:
§ Non-deduction
§ Short deduction of TDS,
§ Non-deposit
§ Late deposit
§ Short deposit of tax
already deducted.
(ii)
Whether TDS has been made against the
expenditures which require deduction.
(iii)
Whether deduction has been made at proper rate.
(iv)
Whether the tax deducted has been deposited to Government account in due time.
(v)
Whether the statements have been filed.
Types of defaults
committed by the deductors
Mainly two types of
substantive defaults are committed by the deductors:
(a) Tax deducted or
collected but not deposited;
(b) Tax not
deducted/collected at all or, even if deducted/collected, short deduction or
collection of tax
Besides, there are a
large number of procedural defaults, such as:
(a) Failure to furnish or
late-furnishing of statement under section 200(3) of the Act;
(b) Failure to issue or late
issue of TDS Certificates (Form 16, 16A, 16B, 16C;
(c) Failure to furnish
statement of perquisites under section 191(2C) of the Act;
(d) Failure to file
statements in Form No. 24Q, 26Q, 27Q, 27A, 27EQ and 26B within the prescribed
time.
Guidelines for TDS/TCS
Surveys - Non-Deduction/ Short Deduction Defaults
For finding out
defaults, including default of non-deduction/short deduction, survey team may
verify the following issues:
(a) Whether tax has been
deducted at the appropriate rate and under appropriate section.
(b) TDS under inappropriate
section:
§ 192 vs. 194J : - Salary
paid by coaching institutes or by hospitals to its skilled employees, liable to
TDS under section 192, is often camouflaged as payment to professionals and TDS
is made under section 194J
§ 194C vs. 194J :- this is
the most commonly found type of short deduction cases. For example, payment to
recruitment agencies are often subjected to TDS under section 194C while it
should be under section 194J
§ 194C vs. 194I :-
instances of this include payment made by corporate customers to hotels
pursuant to a fixed rate concessional agreement. Another instance is payment by
tenant shops to mall owner where TDS is made under section 194C while it should
be under section 194I
Follow best practices
TDS Surveys can be effective tools for detection of non-compliance in
TDS/TCS and identifying defaults under section 40(a)(i)/(ia)/(iii) of the Act.
The following indices have been listed in the CAP for selecting a potential case for survey.
(i)
If case is in prosecution
list (where TDS/TCS not deposited after deduction);
(ii)
If TDS payment trend is in
stark contrast to other deductors in similar business;
(iii) If there is a negative trend in payment under a particular Section as
compared to preceding Financial year
(iv)
If a Tax evasion petitions
(TEP) has been filed filed by the deductee against deductor for non deduction of TDS);
(v)
If Assessing Officer has
made a huge disallowance u/s 40(a) (ia)
(vi)
If deductor is a habitual
late filers/non-filers of TDS Statement which is primarily due to late payment
or non/short deduction
(vii) If there is a negative growth in TDS payment as against healthy growth
in Advance tax payment;
(viii) If deductor make frequent corrections in TDS Statements and also the
name of deductors is regularly changed.
(ix)
If deductor is a sick unit
or units with negative operating margins as reported in Tax Audit report under
section 44AB
(x)
If a grievance petition has
been filed by the deductee against deductor
(xi)
If against deductor, there
is some adverse news/information available through media/internet;
(xii) If analysis of case laws decided against deductor suggests TDS defaults
Basis of selection of
TDS Survey cases
(i)
Deposit
of TDS is lower than earlier years
(ii)
Any
complaint from deductee/outsider giving information of non payment of TDS.
(iii) Tax Evasion Petitions
(TEPs)
(iv) Analysis of Newspaper
reports/ information available through internet
(v)
Analysis
of case law decided in favour of revenue
(vi) Information arising out
of details filed alongwith
(vii) TDS certificate under
section 197 for any lower rates or no deduction of income-tax on their receipts
in Form No 13
(viii) Third party information
(ix) Analysis of TDS Date
§ Cases in prosecution
list
§ Non filing of TDS/TCS
Statement
§ Habitual late filers of
TDS/TCS statement [late filing is closely linked to late payment]
§ Cases showing shift in
TDS [particularly from section 194J/194-I to 194C]
Work relating to
identifying top deductors paying less/no tax with respect to previous financial
years:
In past few years it has
been observed that the list of top deductors is fluctuating very frequently in
each CsIT (TDS) charge. This is mainly due to sudden break in depositing TDS or
by paying very less TDS by many top deductors in relevant financial years. The downfall
in TDS deduction of top deductors of the region needs to be monitored. The
analysis of the downfall in TDS deduction should consider quantum of deduction,
nature of the payment and reason for downfall.
§
Generating
a list of top deductors on the system through TRACES functionality, for the
last three financial years.
§
Ascertaining
reasons for lower tax deduction or collection, based on the type of
industry/business.
§
Issuing
letters to the deductor to ascertain the reason for negative growth and
thereafter taking corrective measures such as spot verifications or referring
the matter for prosecution in the case to the CIT (TDS), if the tax so
deducted/collected is being utilized by the TAN holder for business.
§
In
case of listed companies whose financial results are available in public
domain, if there is fall in TDS as compared to earlier year but financial
results show business growth, the case must be picked up for survey/spot
verification.
§
Survey/spot
verification may also be resorted to in case of deductors showing negative
growth.
Checklist for survey in TDS
cases
A. Before Survey
§ Collecting evidence of
any default made by the assessee.
§ Verification of the
information from the relevant assessment records.
§ Nature of business and
payments made by the assessee.
§ Examination of the
payments with reference to the heads of TDS.
§ Whether deduction has to
be made under any other head.
§ TDS return of the
assessee for the last 3 years.
§ No. of branches of the
assessee company.
§ Whether more than one
TAN is applied.
§ Collection of
information from e-TDS returns filed.
§ Reconnaissance of the
premises to find out the computer infrastructure, division handling TDS matter
etc.
Be prepared
§ With the business model
of the assessee from Tax Audit Report/Internet
§ With the structured
questionnaire for statement
§ With the Data from the
ITD system/ Return of income
§ With list of documents
that may be asked on arrival at the premises
B. During Survey
§ Examination of the
P&L account of the current year and last 2 years.
§ Nature of the payments
in these years.
§ Identification of the
deduction made under any of the TDS provision of Section 192 to 196D.
§ Comparison of the
payments shown in the P&L account and the TDS return filed.
§ Collection of
information of TDS certificate issued to different persons.
§ Whether the tax has been
deducted at the appropriate rate and under appropriate Section.
§ Whether the tax deducted
has been paid to Government account within the prescribed time limit
§ In case of TDS on salary
payments, the deduction claimed by employees, i.e. NSC deposit, PPF, House rent
payment, donation under section 80G, etc. should be verified. The perquisite
valuation of the employees should be examined
§ Regarding deduction
against interest on securities, in cases of cumulative deposits/bonds, tax is
to be deducted every time interest is credited in the account of the payer and
is not to be postponed till its maturity
§ In respect of TDS
against payments to contractors/sub-contractors, tax is to be deducted from
(a)
adjustable
advance payments;
(b)
gross
payments in respect of composite works contract;
(c)
payments
made in pursuance of a contract or subcontract, free of tax;
(d)
payments made for all types of
contracts, including service contract, transport contract, material contract,
advertising contract, broadcasting contract, telecasting contract, labour
contract and works contract;
(e)
payments
made to clearing and forwarding agents for carriage of goods; and
(f)
payments made to courier agencies for
carrying documents, letters, etc.
§ With regard to TDS on
rent, tax has also to be deducted in respect of
(a) fixed monthly warehousing charges;
(b) composite charges paid/payable for use of
premises or other services;
(c) nonrefundable advance, adjustable loan or
deposit made; and
(d) room rent for hotel accommodation taken on a
periodical basis
§ Following documents are
also to be veried during TDS survey
(a) Trial Balance
Ø Current year’s “detailed
trial balance” as on date of inspection should be obtained immediately
(b) Cash Book
(c) Specific ledger accounts
Ø Verify the TDS payable
account by obtaining the ledger copy
(d) Balance sheet
Ø Verify the Assets
schedule in the balance sheet for any increase in the assets like any
construction work or any installation of new machinery,
capital-work-in-progress, loans and advances etc. Please verify the TDS
item-wise on this.
Ø Check the Annual
Maintenance Contracts of all machinery or vehicles in assistance.
(e) Audit report
(f) Challans
(g) Rent agreement
(h) Contract agreement
Be professional
§
Execute
operations in professional way
§
Function
like a team
§
Delegate
tasks to team members
§
Do
not sit idel [it sends a very wrong message to assessee]
§
Be
courteous yet firm in your approach
§
Keep
the Range Head updated of the progress
§
Collect
only those documents that are required [Avoid garbage]
Other points to consider
in TDS Survey
In case of survey under
section 133A(2A) [for TDS/TCS] :
§
The
income tax authority can not impound any books etc.
§
No
inventory of cash
etc can be made.
So the scope of TDS
surveys is limited to collection of information and verification of documents
to ascertain the TDS/TCS liability.
Record
statement
§
Record
statement under section 133A
§
General
information of the business activity
§
Record
the discrepancies found
§
Point
out where proper deduction has not been made and record the reason
Issue summons under section 131(1)
§
Where
the required document could not be produced during the course of survey, issue
summons under section 131(1) to produce on a particular date.
C. After Survey i.e. Post-survey Work in TDS/TCS
Cases
After conclusion of Survey, the Assessing Officer is
required to take the following follow-up action:
(a)
A
preliminary report is to be sent within 48 hours and final report to be
sent within 60 days [Ref: Para - 2(iv) of Board’s direction issued vide F. No.
299/105/2014–Dir (Inv. III)/241 dated 9.8.2017 stipulated that all Income-tax
authorities conducting survey u/s 133A shall submit such reports. However, the
terms ‘undisclosed income detected’ will be ‘TDS/TCS failure detected’ and
‘nature of concealment’ will be termed as ‘nature of TDS/TCS failure’. As
regards fulfilment of three conditions of manual scrutiny selection are
concerned–‘Not applicable’ may be written]. But outcome of survey needs to be
recorded in the reports.
(b)
Show-cause
to be issued
at the earliest, preferably during the survey, particularly in cases involving
defaults of tax deducted/collected but not deposited.
(c)
Other
TDS ranges must be informed in cases of branch offices which are filing their
TDS returns separately to examine similar defaults.
(d)
Order
under section 201(1)/201(1A) to be passed immediately after collection of all
relevant details and giving reasonable opportunity;
(e)
It
is important that consequential proceedings under section 201(1) of the Act are
initiated as expeditiously as possible and keeping in mind the limitation laid
down in section 201(3) of the Act
(f)
It
may be kept in mind that a claim of direct payment by the payee is governed by
proviso to section 201(1) read with Rule 31ACB and Form no. 26A read with
Notification no. 11/2016 dated 2.12.2016 of the Board. However, even in such
cases the liabilities for interest under section 201(1A) and penalty under
section 271C remain
(g)
Penalty
proceedings under relevant section should be initiated
(h)
Prosecution
proceedings under relevant section should be initiated following the SOP dated
09.12.2016 for prosecution in TDS cases.
