On fake receipts, forged signatures and travelling at the speed of light

On fake receipts, forged signatures and travelling at the speed of light

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April is a relaxed month for payroll people like us. A a lot wanted quiet interval after the hustle and bustle of the final quarter (Jan to Mar) once we put in vital efforts for year-end actions corresponding to funding proof scrutiny and revenue tax finalization. Pouring over lease receipts, home-loan curiosity certificates, depart journey payments submitted by hundreds of staff (in our case) is not any enjoyable or stroll within the park, I can guarantee you. The truth that we've got one other eight months or so, for the year-end actions to start out for the present yr, is sort of comforting. We're of the view that employers shouldn't be conducting funding proof scrutiny because the course of is misplaced, costly and inefficient. Earlier than we get into ranting about this, allow us to speak about a current judgement delivered by an Revenue Tax Appellate Tribunal (ITAT) on a home lease allowance exemption declare made by an worker.

A current tribunal judgement

An worker claimed that she paid home lease to her mom and sought home lease allowance tax exemption beneath Part 10(13A) of the Revenue Tax Act. The worker additionally claimed that the month-to-month lease quantities have been paid by means of money and produced home lease receipts to substantiate the identical.

The Assessing Officer (AO) contended that the home lease receipts have been created simply to provide credence to what was a sham transaction. The AO based mostly his opinion on quite a lot of elements together with the findings of an investigation which was launched to examine if the worker genuinely lived in her mom’s property. The AO disallowed the HRA exemption claimed by the worker.

The ITAT, after going via the information, agreed with the AO, and rejected the worker’s attraction for the next causes.

1. No proof of tenancy.

The assessee couldn't produce any proof arising within the regular course of occurring of transaction of hiring of premises corresponding to depart and license settlement, letter to society intimating about her tenancy, cost by way of financial institution, money funds backed with recognized sources, electrical energy invoice funds via cheque, water invoice funds via cheque, some correspondence coming throughout that interval of alleged tenancy to show that transaction of hiring of premises was real and was occurring in the course of the stated interval.


Even on touchstone of preponderance of human chances, it's fairly unbelievable that the assessee was dwelling together with her mom at ‘Neha Flats’ and paying her substantial lease of Rs. 31,500/- per 30 days for a small flat of 1 BHK of 400 sq. ft whereas her personal home was at simply 5 minute strolling distance at ‘Tropicana’ . It's also unbelievable that the assessee being a married woman will depart her husband and daughter and begin dwelling with mom at one other residential flat which is simply 5 minute strolling distance and pay big lease per thirty days.

2. Proof that the worker was dwelling elsewhere.

The assessee was in-fact staying in her personal flat at ‘Tropicana’ together with her husband which is emanating from numerous evidences that are on report akin to ration card, financial institution statements, return of revenue filed with Income and so forth which can also be in consonance with regular human conduct of Indian married ladies dwelling together with her husband and daughter in a residential flat owned by the assessee collectively with husband.

three. No proof that there was any precise cost of lease.

The lease is paid in money towards which there are not any withdrawal of money from financial institution proven by the assessee. The assessee herself admitted that there are minimal withdrawal from her checking account as family bills are incurred by her husband. The assessee couldn't clarify and reconcile stated money funds of lease with recognized sources of money because the money was not withdrawn from financial institution. This lease receipt ready by her mom doesn't encourage confidence.

four. The owner didn't file any return declaring revenue from home property.

The mom of the assessee has additionally not filed return of revenue since final six evaluation years and stated rental revenue was not delivered to tax within the palms of mom of the assessee.

The judgement

Wanting into all these factual matrix of the case earlier than us, we're of thought-about view that the entire association of lease cost by the assessee to her mom is a sham transaction which was undertaken by the assessee with the only intention to say exemption of HRA u/s 10(13A) of 1961 Act with a purpose to scale back tax legal responsibility and therefore in our thought-about view, exemption u/s 10(13A) of the Act can't be allowed to the assessee because the funds in the direction of lease are usually not real cost. The evidences on document are talking loudly which is simply reverse to what the assessee is contending.

The above is a case during which the Revenue Tax Division lifted the veil and concluded that there was no real underlying transaction to help the worker’s declare to avail home lease allowance tax exemption.

Employer’s duty

Part 192 of the Revenue Tax Act requires employers to scrutinize proof submitted by staff, previous to calculating tax advantages as a part of wage TDS calculation. Which means an employer ought to search proof resembling lease receipts, medical payments, housing-loan curiosity certificates, depart journey receipts and so on. and look at the identical as a part of their TDS duties.

The Revenue Tax Division, in its wage TDS round, states:

The Drawing and Disbursing Officers ought to fulfill themselves concerning the precise deposits/ subscriptions / funds made by the workers, by calling for such particulars/ info as they deem vital earlier than permitting the aforesaid deductions. In case the DDO is just not glad concerning the genuineness of the worker’s declare relating to any deposit/ subscription/cost made by the worker, he shouldn't permit the identical, and the worker can be free to say the deduction/ rebate on such quantity by submitting his return of revenue and furnishing the required proof and so on., therewith, to the satisfaction of the Assessing Officer.

The query is to what extent ought to an employer go with a purpose to confirm the genuineness of an worker’s declare. Within the case regulation referred to within the earlier part, the Revenue Tax Division expended vital assets to be able to consider the worker’s tax exemption declare. No employer can conduct such an in-depth investigation on the proof submitted by staff who want to search tax exemption. If any of the proof paperwork which look real is confirmed to be a pretend after an in depth investigation, to what extent can an employer be held accountable?

A farce referred to as funding proof scrutiny

Most employers are ambivalent about their duty in the direction of funding proof scrutiny. On paper, all employers want to adjust to revenue tax guidelines on this. Nevertheless, from a sensible standpoint, only a few employers do the train with the required seriousness given the enormity of the duties concerned. Typically, the entire train degenerates right into a farce for extra causes than one. Many staff submit proof paperwork which aren't real and employers look the opposite method and easily settle for the proof as given, going towards the spirit of Part 192. Listed here are a number of the commonest transgressions.

a. Medical payments
Need to get tax advantage of Rs 15,000 per yr (out there for medical expense incurred) however don't have any medical payments? No worries! There are suppliers of medical payments for a small payment. Else, create a number of copies of a invoice and distribute them amongst staff. Simply hope that the employer doesn't detect duplicate payments.

b. Pretend lease receipts
Prior to now few years, there was a sudden improve within the variety of staff declaring a home lease which is barely lower than Rs 1 lakh per yr. As you'd remember, there isn't a have to submit landlord PAN if the annual lease quantity is lower than Rs 1 lakh. Simply create a lease receipt with what seems like a landlord signature and submit it to the employer. No questions requested.

c. Cast signatures
So what if the lease cost is greater than Rs 1 lakh within the yr? In case you are unable to obtain the PAN from the owner, simply create a “No PAN” declaration and forge the owner’s signature.

d. Hitting the universe’s velocity restrict
Some of the prolific and hilarious scams in funding proof submission is with regard to tax exemption declare on depart journey bills. Many staff submit taxi receipts (creating practice and air ticket copies isn't straightforward, you see) from non-existent taxi corporations as proof of journey bills. However how does one present journey particulars for LTA quantities that are as excessive as Rs 50,000 or Rs 1 lakh? We discover staff having travelled hundreds of kilometres by taxi and that too inside a few days. Journey particulars which learn like the next.

Journey from Chennai to Goa, Delhi, Srinagar and Leh and again to Chennai by taxi with 5 relations from 15-Apr-2016 to 18-Apr-2016.

Albert Einstein referred to the velocity of sunshine because the universe’s velocity restrict. Some LTA claims clearly denote that the workers should have travelled on the velocity of sunshine of their taxi with a view to cowl all of the locations they declare to have visited as a part of their depart journey.

Breaking the tax guidelines is nothing to be pleased with. However attempt telling that to an worker who submits a pretend receipt, you'll get a lecture on how everyone seems to be corrupt and why, in in the present day’s age, there's nothing flawed in submitting a pretend receipt for a bit tax profit.

Alas, few need to be the change they want to see.

Many employers discover it costly and impracticable to stick to the spirit of Part 192 whereas verifying the claims of staff. The Revenue Tax Division ought to contemplate eradicating the duty of funding proof scrutiny from employers.

A suggestion to employers

One could also be of the view that asking employers to conduct funding proof scrutiny is ill-conceived and inefficient. Everybody has the best to critique tax guidelines and supply strategies for enchancment. Nevertheless, it's incumbent upon all to comply with the revenue tax guidelines as they exist with out fail and with all sincerity. Employers ought to educate staff concerning the significance of following revenue tax guidelines in letter and spirit. Additional, corporations ought to provoke disciplinary proceedings towards staff who wantonly submit pretend receipts, along with rejecting tax profit claims by such staff.

Who is aware of, it might properly be your group’s flip to listen to from the Revenue Tax division within the close to future on how properly you're discharging your obligations as a Tax deductor.

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