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EFFECTIVE TAX RECOVERY

EFFECTIVE TAX RECOVERY. BY S. MOHD. MUSTAFA, IRS JCIT, TPO, CHENNAI ( FORMERLY TRI & TRO). MODES OF RECOVERY AVAILABLE TO TRO. A. U/S 222(1) & U/R 4 OF SECOND SCHEDULE: 1. ATTACHMENT & SALE OF MOVABLE PROPERTY 2. ATTACHMENT & SALE OF IMMOVABLE PROPERTY 3. ARREST & DETENTION

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EFFECTIVE TAX RECOVERY

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  1. EFFECTIVE TAX RECOVERY BY S. MOHD. MUSTAFA, IRS JCIT, TPO, CHENNAI (FORMERLY TRI & TRO)

  2. MODES OF RECOVERY AVAILABLE TO TRO • A. U/S 222(1) & U/R 4 OF SECOND SCHEDULE: 1. ATTACHMENT & SALE OF MOVABLE PROPERTY 2. ATTACHMENT & SALE OF IMMOVABLE PROPERTY 3. ARREST & DETENTION 4. APPOINTMENT OF RECEIVER B. U/S 226(1A): 1. ATTACHMENT OF SALARY – 226(2) 2. ATTACHMENT OF DEBT – 226(3) 3. ATTACHMENT OF MONEY IN THE CUSTODY OF COURT – 226(4) 4. ATTACHMENT & SALE OF MOVABLE PROPERTY (IF AUTHORISED BY PCCIT/CCIT/PCIT/CIT) – 226(5) C. U/S 228A(2): IF PROPERTY IS OUTSIDE INDIA

  3. ATTACHMENT & SALE OF MOVABLE PROPERTY • SPEEDY & EFFECTIVE FORM OF RECOVERY • DO IT UNDER SECOND SCHEDULE, NOT UNDER 226(5) • VERIFY ARREARS BEFORE ISSUE OF ITCP-2 • EVEN DURING PENDENCY OF FIRST APPEAL • EVEN BEFORE EXPIRY OF 15 DAYS OF SERVICE OF ITCP-1, IF TRO IS SATISFIED THAT DEFAULTER IS LIKELY TO CONCEAL, REMOVE OR DISPOSE OF WHOLE/PART OF ATTACHABLE MOVABLE PROPERTY – IN WHICH CASE: 1. REASONS TO BE RECORDED IN WRITING 2. IF SECURITY IS FURNISHED TO THE SATISFACTION OF TRO, SUCH ATTACHMENT SHALL BE CANCELLED FROM THE DATE OF ACCEPTANCE

  4. EFFECTIVE ATTACHMENT OF MOVABLE PROPERTY • MOVABLES IN A POSH HOUSE AT KILPAUK • STOCK-IN-TRADE IN JEWELLERY SHOP & CAR AT ROYAPURAM • CASH FROM- FMCG SHOWROOM AT ANNA SALAI THEATRE AT ANNA SALAI • MOVABLES IN LEATHER OFFICES AT VEPERY

  5. ATTACHMENT & SALE OF IMMOVABLE PROPERTY • MOST IMPORTANT MODE OF RECOVERY • TO BE ATTACHED IMMEDIATELY AFTER 15 DAYS OF SERVICE OF ITCP-1 IF DUES ARE NOT PAID • PREPARATIONS TO BEGIN IMMEDIATELY AFTER SERVICE OF ITCP-1. NOT TO WAIT FOR 15 DAYS • ATTACHMENTS TO BE PROPORTIONATE TO THE DUES (WITH RULE 5 INTEREST & COSTS)

  6. ATTACHMENT & SALE OF IMMOVABLE PROPERTY (CONTD.) • NOT TO BE SOLD DURING PENDENCY OF FIRST APPEAL – UOI Vs. NAWN BC 84 ITR 526 (CAL.) • IF DEFAULTER HAS PROPERTY WITHIN THE JURISDICTION OF MORE THAN ONE TRO& IF TRO – A. IS NOT ABLE TO RECOVER ENTIRE DUES BY SALE OF MOVABLE/IMMOVABLE PROPERTY IN HIS JURISDICTION; OR B. OPINES THAT FOR EXPEDITIOUS RECOVERY OF WHOLE OR PART OF DUES IT IS NECESSARY, HE MAY SEND TRC (COPY OF TRC IF ONLY PART DUES TO BE RECOVERED) TO THE OTHER TRO.

  7. RULE 68B OF SECOND SCHEDULE • MOST IMPORTANT PROVISION FOR TRO • ATTACHED IMMOVABLES CANNOT BE SOLD AFTER 3* YEARS FROM END OF F.Y. IN WHICH DEMAND BECOMES CONCLUSIVE *EXTENDED TO 4 YEARS VIDE NOTIFICATION, WHICH WAS DECLARED INVALID IN 270 ITR 433 (AP). THEREFORE 3 YEARSIS THE CORRECT LIMIT FIRST PROVISO TO SEC.68B PERMITS EXTENSION OF ONE YEAR UNDER CERTAIN CONDITIONS. IF NOT SOLD, ATTACHMENT ORDER DEEMED TO HAVE BEEN VACATED.

  8. WHEN DEMAND BECOMES CONCLUSIVE ? • IN THE CASE OF THAKURDAS HOODA Vs. M.L. PERUMAL, TRO, MADRAS HC HELD THAT WHEN A FURTHER APPEAL HAS NOT BEEN FILED WITHIN THE TIME-LIMIT FOR FILING OF APPEAL, THE ORDER IS SAID TO BECOME CONCLUSIVE.

  9. HOW TO ASCERTAIN LIMITATION U/R 68B • GO THROUGH REGISTER OF IMMOVABLE PROPERTIES ATTACHED. (IF NOT AVAILABLE, CREATE ONE BY GOING THROUGH ALL FILES) • FOR EACH A.Y. COVERED IN TRC FOR WHICH ATTACHED (OR FOR EACH TYPE OF DEMAND FOR AN A.Y. IF COVERED IN DIFFERENT TRCs. e.g. TAX, PENALTY) FIND OUT CURRENT STATUS FROM- 1. FILE OF A.O. (MAY NOT BE ACCURATE) 2. AST/ITBA (MAY NOT BE ACCURATE) 3. DEFAULTER/A.R. (MAY BE MISLEADING) 4. O/O CIT(A), WEBSITE OF ITAT/HC/SC, NJRS, JUDICIAL OFFICERS

  10. HOW TO RECOVER FROM TIME-BARRED PROPERTIES IF ALREADY TIME-BARRED- 1. FRESH ATTACHMENT TO BE MADE IF OTHER DEMAND (UNCERTIFIED/UNATTACHED) EXISTS 2. RENTAL INCOME MAY BE ATTACHED 3. RECEIVER MAY BE APPOINTED (IF PROPERTY CONSISTSW OF BUSINESS) 4. ASK A.O. TO INVOKE SEC.232 – FILING OF CIVIL SUIT – LIMITATION 30 YEARS

  11. PRIVATE SALE OF IMMOVABLE PROPERTIES? • U/R 16(1) OF S.S., AFTER SERVICE OF ITCP-1, ASSESSEE CANNOT DEAL* WITH PROPERTY WITHOUT PERMISSION OF TRO. *MORTAGE, CHARGE, LEASE, ETC • SINCE TRO’S PERMISSION IS IMPLIED, THERE ARE INSTANCES OF PRIVATE SALE, WITH PRIOR PERMISSION OF TRO.

  12. PRACTICAL CONDITIONS FOR PRIVATE SALE • AGREEMENT OF SALE/DRAFT SALE DEED SHOULD RECORD TAX ARREARS & ATTACHMENT • CONSIDERATION (OR TAX DUES, IF LESS) TO BE AGREED TO BE PAID BY WAY OF DD IN THE NAME OF TRO • IF CONSIDERATION IS LESS THAN DUES, GET MARKET VALUE FROM SRO/VALUATION CELL • ADMINISTRATIVE APPROVAL OF PCIT TO BE OBTAINED • ORDER LIFTING ATTACHMENT TO BE EXCHANGED FOR D.D. BEFORE SRO

  13. ESSENTIAL REQUIREMENTS FOR ATTACHMENT OF IMMOVABLES ESSENTIAL REQUIREMENTS U/R 48-50 OF SECOND SCHEDULE: • SERVING THE ORDER, WITH CORRECT ARREAR POSITION, ON DEFAULTER • IN THE PRESENCE OF ATLEAST 2 WITNESSES, TRI TO- A. AFFIX A COPY ON THE PROPERTY B. GET THE DRUM BEATEN C. PROCLAIM IN LOCAL LANGUAGE & ENGLISH D. GET PANCHANAMA PREPARED BY WITNESSES 3. ON RETURN, TRI TO AFFIX COPY ON NOTICE BOARD & RECORD ENDORSEMENT 4. TRI TO GIVE A REPORT ENCLOSING PANCHANAMA

  14. PRACTICAL ADDITIONAL REQUIREMENTS FOR EFFECTIVE ATTACHMENT OF IMMOVABLES • SERVE A COPY OF ORDER ON SRO • OBTAIN E.C. FROM SRO TO ENSURE HIS RECORDING OF ATTACHMENT • ISSUE ADVERTISEMENTS IN ENGLISH & LOCAL LANGUAGE NEWSPAPERS GIVING NAME OF DEFAULTER & PROPERTY ATTACHED – INS.1785 IN F.NO.405/23/87-ITCC DT.25-2-1988. • EFFORTS TO BE MADE TO OBTAIN TITLE DEEDS OF ATTACHED PROPERTY - INS.1866 IN F.NO.404/173/90-ITCC DT.21-11-1990.

  15. APPOINTMENT OF RECEIVER TWO KINDS OF APPOINTMENT OF RECEIVER: 1. APPOINTMENT FOR BUSINESS U/R 69: IF PROPERTY CONSISTS OF A BUSINESS,TRO TO ATTACH THE BUSINESS & APPOINT A RECEIVER TO MANAGE THE BUSINESS 2. APPOINTMENT FOR IMMOVABLE PROPERTY U/R 70: AFTER ATTACHMENT, INSTEAD OF SALE, RECEIVER CAN BE APPOINTED TO MANAGE.

  16. WHEN RECEIVER CAN BE CONSIDERED • WHEN IT IS APPREHENDED, ON REASONABLE GROUNDS, THAT DEFAULTER IS LIKELY TO DISSIPATE THE PROPERTY OR CAUSE IRREPAIRABLE MISCHIEF TO IT – 108 IC 348 • WHEN DEFAULTER IS WITHDRAWING LARGE FUNDS FROM BUSINESS WITHOUT ANY NECESSITY – 213 IC 234 • WHEN VALUE OF PROPERTY IS VERY LARGE COMPARED TO THE DUES & IT CAN BE RECOVERED FROM THE INCOME • WHEN DEFAULTER HAS ONLY A RIGHT TO RECEIVE THE INCOME WITHOUT POWER TO ALIENATE

  17. WHERE RECEIVERS CAN BE APPOINTED • LODGING HOUSES • CINEMA THEATRES • AMUSEMENT PARKS • MARRIAGE HALLS • TOLL TAX COLLECTION CENTERS • SHOPPING MALLS (RENT COLLECTION) • VEGETABLE OR OTHER MARKETS • PARKING CENTERS • JOB WORK MILLS (e.g. RICE HAULERS, FLOUR MILLS, GROUNDNUT DECORTICATING MILLS,ETC)

  18. ARREST & DETENTION • NO OTHER AUTHORITY IN DEPT. HAS THIS POWER. • IT IS AN INVASION OF HUMAN LIBERTY. NOT TO BE FREQUENTLY OR ROUTINELY RESORTED TO • POWER TO BE USED IN A JUDICIOUS MANNER WITH PROPER JUSTIFICATION • TRO WILL BE PERSONALLY LIABLE FOR DAMAGE WHERE ILLEGAL ARREST & DETENTION WAS DONE – 78 ITR 352 (ALL.) • AN ILLEGAL OR IRREGULAR ARREST CAN BE RESISTED BY THE PERSON (BY USING VIOLENCE, IF NECESSARY) TO BE ARRESTED

  19. WHO CANNOT BE ARRESTED? • WOMEN, MINORS & PERSONS OF UNSOUND MIND – U/R 81 • LEGAL REPRESENTATIVES OF DECEASED DEFAULTER -U/R 85 – UNLESS HELD PERSONALLY LIABLE U/S 159(4) & THEIR NAME APPEARS IN TRC • MEMBERS OF HUF (FOR ARREARS OF HUF)-U/R 73 • PARTNERS (FOR ARREARS OF FIRM) UNLESS THEIR NAMES APPEAR IN TRC – INS.517 DT.28-2-73 • LIQUIDATORS & DIRECTORS OF PVT. COMPANIES IN LIQUIDATION (FOR ARREARS OF CO.) UNLESS THEY ARE PERSONALLY HELD RESPONSIBLE U/S 178/179 • DIRECTORS OF PUBLIC LTD. CO. AS PER CPC: • NO JUDGE, MAGISTRATE OR OTHER JUDICIAL OFFICER SHALL BE ARRESTED UNDER CIVIL PROCESS WHILE GOING TO, PRESIDING IN OR RETURNING FROM COURT • NO PERSON WHO IS GOING TO & RETURNING FROM ANY TRIBUNAL IN CONNECTION WITH LITIGATION PENDING BEFORE SUCH TRIBUNAL SHALL BE ARRESTED UNDER CIVIL PROCESS

  20. WHO CAN BE ARRESTED? • ONLY NATURAL PERSONS CAN BE ARRESTED. e.g. 1. INDIVIDUALS 2. KARTHA – IF HUF IS THE DEFAULTER 3. PARTNER – IF FIRM IS DEFAULTER & IF HIS NAME APPEARS IN TRC 4. LIQUIDATORS & DIRECTORS OF PVT. COMPANIES IN LIQUIDATION (FOR ARREARS OF CO.) IF THEY ARE HELD PERSONALLY LIABLE U/S 178/179

  21. WHEN ARREST CAN BE MADE? 1. U/R 73(1), TRO CAN ORDER ARREST & DETENTION IF HE IS SATISFIED THAT- (a) AFTER DRAWING UP OF TRC, DEFAULTER HAS, WITH THE OBJECT OR EFFECT OF OBSTRUCTING THE EXECUTION OF TRC, DISHONESTLY TRANSFERRED, CONCEALED OR REMOVED ANY PART OF HIS PROPERTY; OR (b) DEFAULTER HAS, OR HAS HAD SINCE THE DRAWING UP OF TRC, MEANS TO PAY THE ARREARS OR SOME SUBSTANTIAL PART THEREOF AND REFUSES OR NEGLECTS OR HAS REFUSED OR NEGLECTED TO PAY 2. U/R 73(2), IF TRO IS SATISFIED, BY AFFIDAVIT OR OTHERWISE, THAT WITH THE OBJECT OR EFFECT OF DELAYING THE EXECUTION OF TRC, DEFAULTER IS LIKELY TO ABSCOND OR LEAVE THE LOCAL LIMITS OF JURISDICTION OF TRO.

  22. ADDITIONAL REQUIREMENT IN CASE OF ARREST • APART FROM THE REQUIREMENTS RECORDED IN TRO’S MANUAL, AN ADDITIONAL REQUIREMENT WOULD BE TO COMPLY WITH THE DIRECTIONS OF HON’BLE SC IN THE CASE OF D.K. BASU, ASHOK K. JOHRI VS STATE OF WEST BENGAL, STATE OF U.P ON 18-12-1996,EVEN THOUGH THE DECISION WAS IN CONNECTION WITH POLICE CUSTODY.

  23. RECOVERY SURVEY PURPOSE IS TO COLLECT INFO. USEFUL FOR RECOVERY. e.g. 1. BANK ACCOUNTS (PASS BOOK, CHEQUE BOOK/LEAVES, ACCOUNT STATEMENT, COUNTERFOILS OF PAY-IN-SLIPS, DD APPLICATION) 2. FD, NSC, SHARES, DEBENTURES, R.C. BOOK, INSURANCE POLICY, MUTUAL FUND, ETC 3. RECENT CREDIT SALES BILLS & ADDRESSES OF PURCHASERS 4. ADDRESSES OF TRADE & LOAN DEBTORS AS ON 31ST MARCH BEFORE SURVEY 5. ADDRESSES OF GODOWNS WHERE STOCK-IN-TRADE IS KEPT

  24. RECOVERY SURVEY (CONTD.) 6. DETAILS OF SECURITY OFFERED FOR OD/CC ACCOUNTS 7. ADDRESSES OF PREMISES WHERE CASH IS KEPT 8. ADDRESSES OF PREMISES WHERE ACCOUNT BOOKS ARE KEPT 9. ADDRESSES OF PERSONS FROM WHOM DEFAULTER IS RECEIVING DIFFERENT ITEMS OF INCOME e.g. RENT, COMMISSION, ETC. • EVIDENCE TO PROVE THAT DEFAULTER IS HAVING MEANS BUT STILL NEGLECT/REFUSES TO PAY. e.g. FOREIGN/INLAND TRAVEL, CLUB EXPENSES, PURCHASE BILLS OF EXPENSIVE FMCG ITEMS, ETC. 11. CREDIT CARD STATEMENTS WHICH WILL SHOW DETAILS AT SL.NO.10

  25. RECOVERY SURVEY (CONTD.) • PROVISIONS OF RECOVERY SURVEY ARE SAME AS DONE BY A.O. SINCE BOTH ARE U/S 133A. e.g. 1. PRIOR APPROVAL OF RANGE-HEAD 2. PLACE & TIME OF ENTRY 3. PLACING MARKS OF IDENTIFICATION & MAKING COPIES 4. IMPOUNDING OF DOCUMENTS 5. MAKING AN INVENTORY OF CASH, STOCK OR VALUABLES 6. RECORDING STATEMENT 7. INVOKING SEC.131(1) IN CASE OF NON-COOPERATION BUT FOCUS IS NOT TO TAKE INVENTORY TO FIND OUT EXCESS STOCK. FOCUS IS TO GET INFO. NEEDED FOR RECOVERY

  26. RECOVERY SURVEY (CONTD.) WHAT TO DO IF HUGE CASH OR VALUABLESFOUND DURING SURVEY? SINCE CASH/VALUABLES CANNOT BE SEIZED U/S 133A, TRO CAN ISSUE ITCP-2 AUTHORISING TRI TO ATTACH MOVABLE PROPERTY. WHILE TRO TO CONTINUE WITH SURVEY, TRI CAN SEPARATELY EXECUTE ITCP-2 AND, IF DEFAULTER DOES NOT MAKE PAYMENT, ATTACH CASH & VALUABLES. CARE TO BE TAKEN TO KEEP THE TWO PROCEEDINGS INDEPENDENT OF EACH OTHER .

  27. ROLE OF TRO IN WRITE-OFF WHETHER TRO CAN WRITE-OFF? TRO CANNOT WRITE-OFF ANY DEMAND SINCE ONLY AO, WHO CREATED THE DEMAND, CAN WRITE-OFF, WITH APPROVAL OF COMPETENT AUTHORITIES ACCORDING TO MONETARY LIMITS. TRO IS ONLY A RECOVERY AGENT OF AO. DEMANDS ARE STANDING IN THE NAME (BOOKS) OF AO IN GOVT. OF INDIA ACCOUNT, FROM WHERE ONLY IT CAN BE WRITTEN-OFF. REFERENCE TO TRO, ALONGWITH ITO, IN INS.7/2004 DT.19-8-2004, APPEARS TO BE INADVERTENT. NEVER BEFORE TRO WAS EMPOWERED.

  28. ROLE OF TRO IN WRITE-OFF (CONTD.) WHAT IS THE ROLE OF TRO IN WRITE-OFF? AS PER CBDT O.M. IN F.NO.375/01/2015-IT(B) DT.10-8-2017, IRRECOVERABILITY CERTIFICATE (IRC) IS NOT NECESSARY FOR ARREARS UPTO RS.10,000. THEREFORE WHEREVER CERTIFIED ARREARS (BALANCE) EXCEED RS.10,000, TRO HAS TO ISSUE IRC TO ENABLE AO TO PROCESS THE CASE FOR WRITE-OFF.

  29. ROLE OF TRO IN WRITE-OFF (CONTD.) • ARREAR MAY BECOME IRRECOVERABLE DUE TO NON-AVAILABILITY OF ASSETS ON ACCOUNT OF:- 1. ASSESSEE HAS DIED (WITHOUT LEAVING ANY ESTATE) 2. ASSESSEE HAD BECOME INSOLVENT 3. ASSESSEE IS NOT TRACEABLE 4. ASSESSEE HAS LEFT INDIA 5. COMPANY HAS GONE INTO LIQUIDATION 6. FIRM DISSOLVED/BUSINESS DISCONTINUED 7. ASSESSEE HAS NO ATTACHABLE ASSETS 8. WHEN ALL THE FOUR MODES OF RECOVERY ARE EXHAUSTED. IF ANY MODE COULD NOT BE RESORTED TO, REASONS TO BE RECORDED WHILE PROPOSING WRITE-OFF.

  30. ROLE OF TRO IN WRITE-OFF (CONTD.) • OTHER PROVISIONS TO BE LOOKED INTO BEFORE PROPOSING WRITE-OFF: • SEC.65 (CLUBBING OF INCOME) • SEC.159 (LEGAL REPRESENTATIVE) • SEC.167 (REPRESENTATIVE ASSESSEE) • SEC.170 (SUCCESSION TO BUSINESS) • SEC.171 (PARTITION OF HUF) • SEC.173 (NON-RESIDENT) • SEC.176 (DISCONTINUED BUSINESS) • SEC.177 (AOP DISSOLVED/BUSINESS DISCONTINUED)

  31. ROLE OF TRO IN WRITE-OFF (CONTD.) ENQUIRIES RELATING TO ISSUE OF IRC: FOCUS ON ASCERTAINING THE CAPACITY OF DEFAULTER TO PAY THE ARREARS. DEPENDS ON:- 1.AVAILABILITY OF READY CASH 2. DISCLOSED ASSETS/INVESTMENTS SUCH AS LAND, BUILDINGS, FD, SHARES, INTEREST IN PROPERTY, INTEREST IN BUSINESS, ETC 3. UNDISCLOSED ASSETS & ALIENATED ASSETS MODE OF ENQUIRY: • ASSESSMENT RECORDS • LOCAL ENQUIRY (NEAR RESIDENCE, BUSINESS, BLOOD-RELATIVES, IN-LAWS, TRUSTED EMPLOYEES) 3. CUSTOMER INDEX FOLIO (CIF) WITH BANK 4. INVESTIGATION WING (360 DEGREE PROFILE) 5. CIBIL

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