S. 139 of the Income-tax Act dealing with the procedure for filing Annual Return of Income by assessees has been amended from time to time. The Finance Act, 2003, has inserted new Ss.(1B) w.e.f. 1-4-2003 to enable an assessee, having income from ‘Salaries, House Property, Business, Profession, etc.’ to file the return of income on a floppy, diskette, magnetic cartridge tape, CD-ROM or any other computer media. For this purpose, the procedure was to be notified by Rules. CBDT had issued a Notification No. F-856(E) on 25-7-2003 giving a scheme for filing the e-return for assessees having only income under the head ‘Salaries’.

This scheme has been revised and two Notifications Nos. 1073(E) and 1074(E) dated 30-9-2004 [270 ITR (ST) (37)] have been issued and they apply to returns of income for A.Y. 2004-05 and subsequent years. It may be noted that this scheme for Electronic Furnishing of Return of Income is optional.

Therefore, assessees who do not wish to avail of the facility for filing e-returns, can file their returns of income in the normal manner as hitherto done. Although this new scheme of filing e-returns is made applicable from A.Y. 2004-2005, the Notifications dated 30-9-2004 have come to the knowledge of the professionals and assessees sometime in late October, 2004 when most of the returns of income were finalised and were ready for filing. Moreover, there was no sufficient time to complete the formalities as per these Notifications. Therefore, advantage of this new scheme can be taken for filing e-return of income for A.Y. 2005-2006 and subsequent years.

2. Scheme for filing e-returns :

2.1 As stated above, the CBDT has issued two separate Notifications on 30-9-2004. The first Notification No. 1073(E) deals with Scheme for filing e-returns by assessees having income from house property, business, profession, income from other sources, salaries, capital gains, etc. At present, the scheme is restricted to assessees, who are assessed or are assessable to tax at any of the cities specified in Schedule ‘A’ of the Notification. This schedule gives a list of 60 cities. All capital cities of major States and other large cities in all States find place in this list.

2.2 The second Notification No. 1074(E) deals with the Scheme for individuals having income from salaries, but do not have income from business or profession. In other words, assessees having income from salaries and income from house property, capital gains and income from other sources can take advantage of this scheme. At present, the scheme applies to individuals, who are assessed or are assessable to tax in the 60 cities referred to in the first Notification.

2.3 The benefit of the above schemes can be taken only by assessees who have been allotted PAN and are assessed or are assessable in the above 60 cities.

3. E-Return intermediaries :

3.1 Qualification :

The scheme under the first Notification provides for filing e-returns through an e-return intermediary. For this purpose, e-return intermediary is defined in para 5 of the Notification as under :

(A) Company :

(i) It must be an employer, being a registered company or a statutory body, who :

(a) has been allotted a valid Tax Deduction Account Number (TAN).

(b) has at least 100 employees having taxable income as per the last return of tax deducted at source (TDS) furnished by it.

(c) has furnished the return of TDS within the time prescribed under the Act for the last three years, or

(ii) It is a registered company, including a bank, having a net worth of Rs.5 crores or more and is engaged in the business of providing financial services during the last 5 years..

(B) Chartered Accountants and Advocates :

(i) A firm of Chartered Accountants or Advocates which has, at least for last 3 years, been in practice in matters relating to direct taxes and has returned total income of Rs.2 lacs or more in each of the last 2 years.

(ii) A Chartered Accountant or an Advocate who has, for at least 10 years, been in practice in matters relating to direct taxes and has returned total income of Rs.2 lacs or more in each of the last 2 years.

It may be noted that the intermediary or its principal officer must not have been convicted for any professional misconduct, fraud, or embezzlement or any criminal offence by any Court in India or by any professional body. Since no time limit is stated, there should be no such conviction at any time in the past.

3.2 Hardware and software :

The intermediary is required to set up and commission the hard-ware and software resources as mentioned in Schedule ‘B’ of the scheme. This requirement is as under :

1. Hardware requirements :

(i) Intel Pentium IV or above

(ii) 256 MB RAM

(iii) UPS power backup for minimum 30 minutes

(iv) A screen resolution of 800 x 600 pixels and display of 256 colours

(v) CD Writer/other backup devices like DAT drive

(vi) 20 GB free hard disc space exclusive for ITD.

2. Software requirements :

(i) Windows 98 or Windows NT 4.0 Server/Workstation or Windows 2000 Professional/Server/Advanced Server or Windows XP.

(ii) Antivirus (Mcafee or Symantec)

(iii) Internet Explorer 6.0 or above/Netscape 5.0 or above.

3. Internet connectivity :

(i) Dialup connection 56.6.kbps or above/ISDN/Leased Line.

3.3 Other facility :

The intermediary should also provide the following facility :

(i) He must have at least Class II Digital Signature Certificate from any Certifying Authority authorised by the Controller of Certifying Authorities of India.

(ii) He should have in place security procedure to the satisfaction of e-return administrator (Administrator). This is to ensure that there is no misuse of the facility and that no programs are resident/run on the system used to log on to the computer system of the Department, which could cause any harm to such system.

(iii) He should have necessary archival, revival and security policy for the e-returns, which would be filed through him as decided by the administrator from time to time.

3.4 Authorisation :

A person who wishes to be appointed as an intermediary has to apply to the Registrar appointed under this scheme, along with such application fee and refundable security deposit as fixed by the administrator. The Registrar shall verify the particulars given by the applicant and carry out due diligence of the applicant through an agency empanelled by CBDT for this purpose. This is to ensure that the applicant has set up and commissioned the necessary hardware and software resources. The Registrar has to transmit this application and due diligence report on-line to the administrator, who will issue appointment order along with the ‘The E-return Intermediary Identification Number’ and password to enable the applicant to act as an intermediary. This appointment will be valid for a period of 2 years, which may be extended for a further period of 2 years.

4. Procedure for filing e-return :

4.1 Eligible person :

An assessee who desires to furnish his return under this scheme, will have to ensure that he is eligible to file the return under the scheme. He has to give an authority to the intermediary to act as his agent for the purpose of furnishing his e-return for the relevant year.

He has to furnish a paper return of income with all its enclosures duly verified by him. It is possible for the intermediary to prepare the paper return on the basis of information furnished by the eligible person.

4.2 Procedure to be followed by E-return intermediary :

Para 8 of the scheme provides for detailed procedure for filing e-return by the intermediary. In brief, this procedure is as under :

(i) The intermediary shall upload the completed return of income, after validation of permanent account number, in the format specified by the e-return administrator, using his e-return intermediary identification number (ERIIN).

(ii) The uploaded returns shall be accepted after necessary validation. In respect of each accepted e-return, a provisional receipt shall be generated by the system, which shall be transmitted to the intermediary along with the details of the accepted return. This receipt will also include the jurisdiction of the Assessing Officer before whom the relevant paper return has to be submitted by the intermediary. The intermediary shall also get an error report in respect of the returns which were not ac-cepted, along with the error code.

(iii) In respect of the returns in which error has been reported, the intermediary shall analyse the error code and correct the data on the basis of such code from the paper return available with him. After necessary corrections, the return shall be resubmitted for acceptance and the process as above shall be followed.

(iv) Upon acceptance of the e-return, the intermediary shall generate and affix a copy of the provisional receipt on the paper return and file the paper return with the Assessing Officer indicated on the provisional receipt within 15 days of filing the e-return.

(v) The intermediary shall, within seven days of filing the paper return, upload the acknowledgement number of the paper return and the date of filing the paper return. Upon uploading the above information, the intermediary shall receive a communication conveying completion of the transaction. Thereafter, the intermediary shall deliver the acknowledgement receipt of the paper return of income to the concerned eligible person.

(vi) The date of issue of the provisional receipt shall be deemed to be the date of filing of return of income if the paper return has been filed with the Assessing Officer within fifteen days from the date of issue of the provisional receipt. If the paper return is filed after fifteen days from the date of the provisional receipt, then the date of filing the paper return will be the date of filing of the return of income and such returns will be treated as not having been filed under this scheme.

(vii) If the eligible person wishes to file a revised return u/s.139(5), he can do so within the time limit provided in that Section. If he has filed the original return under this scheme, he can file a revised return under the scheme. He can also file a revised paper return with the Assessing Officer even if he has filed the original return under the scheme.

From the above, it will be noticed that the date of filing of the return under the scheme will be the date of issue of provisional receipt as stated in 4.2 (iv). Thereafter, the intermediary has to file paper return with the Assessing Officer within 15 days. If there is a delay in filing paper return on the part of the intermediary, the assessee will have to suffer the consequences of filing delayed return after the due date.

This will mean that if the due date for filing the return u/s. 139(1) is 31st October, the assessee will have to give the paper return duly completed to the intermediary at least 10 to 15 days before the due date. There is no time limit for the administrator to issue the provisional receipt. Therefore, even if the intermediary files valid e-return by 25th October but there is delay on the part of the administrator and the provisional receipt is given on 2nd November, the assessee will be deemed to have filed the return late. Morever, even if the provisional receipt is given on 30th October but the intermediary files the paper return with the Assessing Officer on 16th November, the return will be deemed to have been filed on 16th November.

The consequences of such delayed filing of the return will be that if the assessee has declared loss in the return, the same will not be allowed to be carried forward. There will be liability for payment of interest u/s.234A in other cases. This will mean that the assessee is penalised for no fault of his. To this extent, this provision for determining the date of filing of return is most inequitable. If this scheme is to be made more meaningful, the date of filing of return should be taken as the date on which the paper return is received by the intermediary or alternatively date on which the intermediary has uploaded the completed return of income to the administrator under para 8(2) of the scheme.

It may be noted that tax audit report u/s.44AB is also required to be filed with the return of income before the due date. If there is a delay in filing this report, penalty is chargeable u/s.271B. There is no mention in this scheme about the manner in which tax audit report u/s.44AB is to be filed.

If it is to be filed with the paper return by the intermediary, the delay in filing return, as explained above, on the part of the administrator in issuing provisional receipt or on the part of the intermediary in filing the paper return with the Assessing Officer will invite penal action u/s.271B and the assessee will suffer due to no fault of his.

It appears that if the paper return with tax audit report is ready well before the due date and is to be handed over to the intermediary before the due date for filing the return, no assessee would like to avail the benefit of this scheme and incur cost in the form of professional fees of the intermediary, if he has to take the risk of penal action for the delay caused by the intermediary or the administrator in the completion of the process under this scheme.

5. Responsibilities of e-return intermediary :

Para 10 of the scheme provides for functions and responsibilities of the intermediary. It provides that he should :

(i) ensure that the assessee is an eligible person under this scheme and that the assessee has quoted a correct and valid permanent account number;

(ii) ensure that the particulars of advance tax, self-assessment tax and tax deducted at source are in accordance with the documents enclosed and that the paper return of income has been properly filled in and duly verified by the assessee, and the enclosures required to be filed with the return of income are enclosed;

(iii) ensure accuracy of the data entry while transcribing the return of income and during its transmission and that the electronic portion of the return of income is transmitted on or before the due date for filing the return of income;

(iv) ensure that the paper return is filed with the Assessing Officer having jurisdiction over the concerned assessee within the time prescribed and retain for a period of one year from the end of the relevant assessment year the electronic data of the return of income and the information relating to the provisional receipt issued in respect of the return filed through it;

(v) provide to the assessee a paper copy of the e-return submitted by it and the acknowledgement receipt of paper return filed by the intermediary to the Assessing Officer;

(vi) maintain confidentiality of the information that comes to his possession during the course of implementation of this scheme and shall not part with any such information to anyone, except with the prior permission of the assessee or the Assessing Officer and ensure that all his employees, agents, franchisees, etc., adhere to the provisions of this scheme; and

(vii) promptly inform the Registrar of any change in the particulars given in the application filed with the e-return administrator, from time to time, for proper implementation of this scheme.

6. E-return administrator :

The administrator is to be appointed by CBDT to administer this scheme. He will be an Officer not below the rank of Commissioner of Income-tax. He has to specify the procedure, formats and standards for ensuring secure capture and transmission of data. He has to ensure compliance with the technical requirements of the scheme by the intermediary. He shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies for proper and secure implementation of this scheme. In other words, he will be responsible for the day-to-day administration of the scheme.

7. Monitoring Committee :

Monitoring Committee is to be appointed by CBDT to assist it in the implementation of this scheme. This will consist of (i) the e-return administrator, (ii) representative of ICAI, (iii) representative of NASSCOM and (iv) a person having special knowledge and experience in the field of information technology. This Committee will advise the CBDT on the following matters :

(a) Agencies for due diligence.

(b) Appointment of Registrar.

(c) Disciplinary superintendence over the intermediary, including review of the functioning of intermediaries, verification of any complaints, scrutinising advertising material issued by them and other similar matters.

(d) Suspension and revocation of authorisation of an intermediary for proven misconduct or violation of the terms of the scheme.

8. Scheme for salary earners :

8.1 As stated earlier, Notification No. 1074(E) issued by the CBDT deals with assessees having income from salary and other sources other than income from business or profession. This scheme applies to an assessee who is an individual and who has been allotted PAN. Moreover, he should be assessed or assessable in any of the 60 cities listed in Schedule ‘A’. This scheme is simple inasmuch as there is no e-return intermediary and the assessee can file e-return himself through the internet. This scheme comes into force w.e.f. A.Y. 2004-05 and is optional so that an assessee, who does not want to avail of the benefit of this scheme, can file paper return with the Assessing Officer.

8.2 Procedure for filing e-return :

Para 5 of the scheme provides for the following procedure :

(i) the eligible person shall register himself on the website as designated by the e-return administrator for this purpose. On registration, the eligible person shall be allotted a user identification number and a password.

(ii) he shall, using his user identification number and password, log on to the designated website and prepare his return of income in the specified electronic format, using the authorised return preparation software provided on the website and shall also :

(a) give particulars of the bank account in which he wishes to receive his refund, if any; and

(b) attach electronically the tax deduction at source certificate, if any, duly signed digitally by the issuer.

(iii) The person shall sign his return of income and its enclosures, using his digital signature and upload (submit) the return of income along with its enclosures and attachments as per instructions available on the website.

(iv) Before accepting the return so filed and issuing the acknowledgement for accepting such return, automated validation checks, as may be decided by the administrator, shall be carried out to ensure that the return so filed is a valid return. Such validation checks may include :

(a) whether permanent account number has been correctly quoted;

(b) whether the digital signatures have not been revoked or suspended and are valid at the time of receipt of the return;

(c) whether the income shown in the tax deducted at source (TDS) certificate has been correctly declared in the return; and

(d) whether the credit for tax deducted at source (TDS) has been correctly claimed in the return.

(v) In case any validation checks fail, an appropriate error message will be generated and sent to the assessee. The assessee shall correct the data on the basis of the error message and re-submit the return of income as above.

(vi) On successful validation, an on-line acknowledgement would be generated giving the acknowledgement number, date and time of filing the return of income, total income returned, and the particulars of the Assessing Officer. Date of generation of on-line acknowledge-ment shall be deemed to be the date of filing of return of income.

9. Processing the return of income :

Both the above schemes provide that the return filed under the scheme will be processed on priority basis. The refund, if any, due to the assessee shall be either credited to his account using the ECS method or sent directly to the assessee.

10. To sum up :

From the above discussion, it is evident that the first scheme is a complicated one. CBDT has tried to incorporate too many checks and balances. The second scheme is simpler and the assessee himself can file the return through the internet.

The second scheme should have been made applicable to assessees, who have no income from salaries but have income from house property, other sources and capital gains only.

Chartered Accountants, who are engaged in the field of Direct Tax practice, will now get an opportunity to enter into this new field of professional practice as e-return intermediaries. They will have to set up internet facilities as provided in the scheme and have a separate dedicated qualified staff for this purpose.

It is not clear why there should be a requirement for filing a paper return after e-return is submitted in time. When the responsibility is given to the intermediary for verification of paper return before submitting e-return, there does not appear any need for the paper return to be filed with the Assessing Officer. By this scheme the paper-work in the Income-tax Office will not be reduced.

On the contrary, it will increase. Moreover, the date of filing the return is to be determined by the date when the provisional receipt is issued by the administrator or the date of filing of paper return by the intermediary. If there is delay on the part of the administrator or on the part of the intermediary, the assessee will suffer. This is a very inequitable provision.

If the Government wants to make this scheme popular and simplify the procedure, the e-return submitted by the intermediary should be accepted as final. The policy of the CBDT is to accept 98% of the returns as they are filed. Therefore, the AO can call for the detailed paper return from the intermediary only if a case is taken up for scrutiny. In other cases, the paper return should not be called for. The intermediary should be asked to preserve the paper return and its an-nexures for a period of 2 or 3 years.

Article by Mr. P. N. Shah Chartered Accountant