TAXMAN TO GET MORE POWER IN CRACKDOWN ON SHELL FIRMS

NEWDELHI: THE income-tax department will get wider powers to proceed against shell companies and errant non-governmental organisations (NGOS) once the proposals in the Union budget are approved by Parliament. The department will then be able to prosecute firms that have not filed their tax returns and monitor all financial transactions conducted by NGOS as they have to mandatorily report their permanent account numbers (PANS).

The tax department will also be able to disallow profit-linked deductions, such as those available to infrastructure firms, in case of a delay in filing of returns.

These measures will expand the taxpayer base and act as a deterrent for tax evaders, Sushil Chandra, chairman of Central Board of Direct Taxes, said in an interview.

In the Finance Bill, 2018, the government has sought to remove a clause that allowed prosecution against companies only if there was a tax payable of more than ₹3,000. This meant that the tax department could not take any action against shell companies that did not file tax returns, since there was no tax payable.

Out of the 1.5 million companies registered with the ministry of corporate affairs, only 730,000 filed their tax returns in assessment year 2016-17.

“Every company that is incorporated has to file a return. It is a statutory requirement whether there is profit, loss or no income. But we could not file prosecution since in some cases there was no tax payable. It is possible that the source of investment is not declared income or there is benami property,” Chandra said.

“It is an anti-abuse provision. Many shell companies never filed returns. If we get returns, it is easier to track money laundering.”

According to the Registrar of Companies (ROC), 297,000 companies were identified as non-filers (those that did not file annual reports and financial statements with the ROC) in 2017-18 for two or more years, and were prima facie not engaged in a business or operation. Of these firms, 226,000 firms were removed from the records as on December 2017, minister of state for law and justice and corporate affairs P P Chaudhary informed the Lok Sabha on January 5.

Amit Singhania, partner at law firm Shardul Amarchand Mangaldas, said the Finance Bill has made non-filing of tax return a criminal offence even if no tax is payable.

Prior to the change, the department had to rely on its own sources of information such as transactions above a threshold that are reported by other entities, he said.