Taxation of income in a vast country such as ours is a challenge due to enormity of the transactions besides the general tendency to evade tax. While presenting the Budget, 2017 the Hon'ble Finance Minister acknowledged that we lack the tendency to comply with tax laws which is confirmed by the low number of taxpayers representing 3% of the total population. The wisdom dawned on the lawmakers that the best way to regulate the business transactions is to create some legal provisions and vest on the taxpayers to report such of those transactions regardless of the tax impact out of those transactions. This could create a base or a trail wherefrom the Revenue can go to the bottom of the matter and detect pilferage of tax, if any.
It is with this tendency section 285BA was inserted into the statute book by the Finance Act, 2003 applicable from the assessment year 2004-05. Originally, this section covered those entering into certain transactions. Later it was substituted by the Finance (No.2) Act, 2004 and later by the Finance (No.2) Act, 2014 w.e.f. 01.04.2015 which has widened the base of reporting of transactions. What was originally conceived as the areas wherefrom the information was sought to be gathered, the administration by virtue of delegated legislation has expanded the scope of reporting / compliance by amending rule 114E of the Income-tax Rules, 1962.
The amendment to rule 114E made by Income-tax (Seventh Amendment) Rules, 2016 applicable retrospectively w.e.f. 01.04.2015 and income-tax (Twenty-Second Amendment) Rules, 2015 w.e.f. 01.04.2016 have cast huge responsibility on the taxpayers as regards reporting with corresponding provisions for penalty for delay in reporting and lump sum penalty for incorrect report.
This write up discusses the gamut of rule 114E read with section 285BA and the issues which may be useful for the professionals and taxpayers at this juncture.