Introduction

Over the last decade the penchant of the revenue authorities of calling for information has increased. Furnishing of this information is a thankless job and non-compliance results in penalties. A citizen would not mind the effort in compiling this information provided the same was effectively used. Unfortunately that does not seem to happen. One hopes that with increasing use of computers the information will be collated and utilized for increasing the tax base.

Section 285 BA of the Income-tax Act, 1961 which deals with "Annual Information Return" was originally inserted by Finance Act, 2003 w.e.f. 1-4-2004. Though the section 285 BA came into effect from 1-4-2004, the rules specifying the transactions and the monetary limits were notified under the Income Tax (17th Amendment) Rules, 2004 issued under notification No. 288 / 2004 c.f. No. 142 / 44 /2003 TPL) dated 1-12-2004. In other words, the section is activated by issuing the above notification.

Section 285BA was originally enacted by Finance Act, 2003 w.e.f. 1-4-2004. However, the prescription as provided in that section was never made and the section did not therefore effectively operate. The section was substituted by Finance Act, 2004 w.e.f. 1-4-2005. The rule and the form in regard to the same were notified on 1st December, 2004 and cover transactions during financial year commencing on 1st April, 2004.

1. Scope of section 285BA
   Provisions of new section 285BA are applicable to the following persons who are specified in sub-section (1). These persons are

   1. An assessee,

   2. The prescribed person in the case of an office of government,

   3. A local authority or other public body or associations,

   4. The Registrar or Sub-Registrar appointed under section 6 of the Registration Act, 1908,

   5. The Registering Authority empowered to register motor vehicles under Chapter IV of the Motor Vehicles Act, 1988,

   6. The Post Master General as referred to in clause (j) of section 2 of the Indian Post Office Act, 1898,

   7. The Collector referred to in clause (c) of section 3 of the Land Acquisition Act, 1894,

   8. A Recognized Stock Exchange referred to in clause (f) of section 2 of the Securities Contracts (Regulations) Act, 1956,

   9. An Officer of the Reserve Bank of India, constituted under section 3 of the Reserve Bank of India Act, 1934,

   10. A Depository referred to in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996.
       Any of the above persons who are responsible for registering or maintaining records of any specified financial transaction during any financial year commencing on or after 1-4-2004 under any law for the time being in force are covered by this section.

   Time and manner of filing return
   The return is to be furnished within the prescribed time in the form and manner prescribed on a floppy diskette, magnetic cartridge, CD-ROM or any other computer readable media. The requisite prescription has been made by Rule 114 E.
    

2. Specified transactions: section 285BA(3)

   Specified Financial Transactions are defined under sub-section (3) of section 285 BA. These are defined to mean any –

   1. transaction of purchase, sale or exchange of goods or property or right or interest in a property, OR

   2. transaction for rendering any service which may be prescribed, OR

   3. transaction under a works contract, OR

   4. transaction by way of an investment made or an expenditure incurred, OR

   5. transaction for taking or accepting any loan or deposits which may be prescribed.

   Threshold limit
   The transactions referred to in paragraph above are covered only if the value or the aggregate value of the transactions during a financial year exceeds Rs. 50,000/- or such higher sum as may be prescribed. Further, it is provided that the Central Board of Direct Taxes (CBDT) may prescribe different values for different transactions as specified in clauses (a) to (e) of section 285BA(3) having regard to the nature of the financial transactions. It is clarified that the CBDT may prescribe different values for different transactions for different persons as referred to in clauses (a) to (j) of the sub-section (1) of section 285BA. The notification issued prescribes the minimum monetary value against such transactions.
    

3. Prescription of Rule 114E
   Rule 114 E was notified on 1st December, 2004
   Rule 114 E lays down the various persons who are now required to file AIR and the transactions to which it applies.
    

   • Summary of the nature of financial transactions, amount involved and the persons responsible for furnishing Annual Information Return is presented herein below in tabular form for convenience of readers.

     Sr.No.	Person responsible to file return	Nature of the financial transaction	Amount involved in (Rs.)	Transaction Code
     1	Banking institutions or companies	Banking institutions/companies receiving aggregate of cash deposit in a year in any savings account of any person	Rs. 10 lakhs or more	1
     2	Banking company/or any other company/institution issuing credit cards	Banking company or any other company/institution receiving aggregate of payments in a year against bills raised on a person to whom a credit card has been issued	Rs. 2 lakhs or more	2
     3	Entity issuing mutual fund units	A Mutual Fund entity receiving the specified amount from any person for acquisition of units	Rs. 2 lakhs or more	3
     4	Company or institution issuing:- (a) Bonds (b) Debentures	Company/institution receiving specified amount from any person from the sale of debentures or bonds	Rs. 5 lakhs or more	4
     5	Company issuing shares though a public or rights issue	Company receiving specified amount from any person on purchase of shares	Rs. 1 lakh or more	5
     6	Registrar/Sub-Registrar registering the documents	The Registrar/Sub-Registrar registering any purchase or sale of an immovable property	Rs. 30 lakhs or more	6 for purchase and 7 for sale of immovable  property
     7	Officer duly authorised by the Reserve Bank of India in relation to issue of bonds	The authorised officer of the RBI receiving aggregates of specified amount from any person to whom bonds have been issued by the Reserve Bank of India	Rs. 5 lakhs or more	8

    

4. Analysis of specified financial transactions

   1. Cash deposit in a bank
      Banking institutions/companies referred to in section 51 of the Banking Regulation Act, 1949 (10 of 1949) are required to report aggregate cash deposits in any savings account of a person in a year if the aggregate of cash deposit exceeds the specified limit; i.e., Rs. 10 Lakhs or more in a financial year. It is to be noted that the provision applies to a bank and not the branch thereof
      
      The issue that arises is whether the limit applies qua branch or qua bank. In my opinion the limit is to be applied to each savings account. Therefore, if a person has savings accounts in different branches the cash deposits in these accounts are not to be aggregated for the purpose of reporting.
       

   2. Credit Card payment
      A banking company to which Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act) or any other company/institution receiving aggregate payment in a year amounting to Rs. 2 Lakhs or more against bills raised on a person to whom a credit card has been issued has to furnish requisite information through AIR.
      
      The issue is whether an add on card is included with the principal card for ascertaining the limit of Rs. 2 lakhs. Even though the principal card holder is liable for bills of the add on card , it is card issued to a different persons. It appears that the limit will apply with reference to each card. Further the reporting will have to be made even though the payments may be made by a person different from the card holder.
       

   3. Investment in Units of Mutual Fund
      An entity-issuing units of mutual fund is under an obligation to furnish an Annual Information Return in respect of persons acquiring units of a mutual fund, where the amount received is Rs. 2 lakhs or more.
      
      On a plain reading of the section, it is clear that the word ‘aggregate’ has not been used in case of investment in units of mutual fund and also the word "Receipt" has been used in the section. Therefore, a view can be taken that this limit of Rs. 2 lakhs or more is in respect of a single investment or transaction in a year. In other words if a person makes investments in units of mutual funds on one or more different occasions in a year each below Rs. 2,00,000/- then mutual fund issuing those units would not be required to furnish Annual Information Return in respect of such person.
       

   4. Issue of bonds and debentures
      A company or institution issuing bonds/ debentures is under an obligation to furnish the Annual Information Return in respect of person acquiring bonds and debentures issued by that company/institution, if the amount received from the person is Rs. 5 lakhs or more. In this case also the word "receipt" has been used and therefore a view can be taken that the limit of Rs. 5 lakhs or more is in respect of a single transaction.
       

   5. Issue of shares
      If a company has received Rs. 1 lakh or more in respect of shares issued by that company through a public or rights issue, the company has to furnish the details of such a transaction. Here, again the words ‘in a year’ are not specified. Therefore a view can be taken that the limit of Rs. 1 lakh or more is in respect of a single transaction. It may be noted that the words used are a company issuing shares through a public or rights issue. Therefore it appears that a private company issuing shares on rights basis will also be covered.
       

   6. Purchase or sale of immovable property
      The registering authority; i.e., Registrar / Sub-Registrar appointed u/s. 6 of the Registration Act, 1908 is required to furnish Annual Information Return in case of persons who have purchased / sold an immovable property, the value of which is Rs. 30 lakhs or more. The words used in notification are " the purchase or sale by any person of an immovable property valued at Rs. 30 lakhs The question that arises is "How will the value of such an immovable property be determined?" The word "value" denotes the value adopted by the Registering authority and not the consideration as appearing in the agreement.
      
      Particularly in the State of Maharashtra, registering authorities barring certain exceptions, generally register documents of immovable property at a value as determined by the stamp duty authorities. Generally stamp duty is payable on higher of the agreement value or true market value, calculated as per state government guidelines for valuation. In Maharashtra, such guidelines are revised each year. The term "value" could create a number of controversies.
      
      Further the term "purchase or sale" has been used as distinct from the term "transfer." Therefore, transactions other than classical "purchase or sale" transactions (say development agreement) may not be covered.
       

   7. Issue of RBI Bonds
      If a person acquires bonds issued by the Reserve Bank of India, the aggregate value of which is Rs. 5 lakhs or more in a year, then an officer authorised by the RBI has to provide requisite information of such transactions in respect of such a person through AIR. The monetary limit applies to the aggregate value of the investments made in a year.
       

5. Procedural aspects of filing of Annual Information Return
    
   Medium of filing AIR
   
   Rule 114 E (4) (a) states that the return (Part A, Part B for Form No. 65) shall be furnished on computer readable media being a floppy (3.5 inch and 1.44 MB capacity) or CD–ROM (650 MB or higher capacity) or Digital Video Disc (DVD) along with Part A of Form No. 65.

   Duties of the person responsible for furnishing AIR
   
   The duties regarding furnishing an AIR stipulated in rule 114E(4)(b).
   The person responsible for furnishing the return shall ensure that –

   1. If the data relating to the return or statement is copied using data compression or backup software utility, the corresponding software utility or procedure for its decompression or restoration shall also be furnished along with the computer media return or statement.

   2. The return is accompanied with a certificate regarding clean and virus free data.

   Time limit for furnishing an AIR

   The time limit /due date for furnishing the Annual Information Return is specified in Rule 114E(5). The return as specified above shall be furnished on or before 31st August, immediately following the financial year in which the transaction is registered or recorded.

   Signing and verification of the AIR

   The AIR should be signed and verified by the following persons as specified in rule 114E(6). In the case of an assessee, the return is to be filed by a person authorised to sign a return under section 140 and in other cases, the person specified in section 285BA(1).

   Quoting of Permanent Account Number

   The quoting of Permanent Account Number (PAN) is compulsory. However PAN is not required to be given in Item No. 2 Part A and Item No. 2 Part B by –

   1. Registrar or Sub-registrar appointed under section 6 of Registration Act, 1908,

   2. A person being an officer of the Reserve Bank of India, constituted under section 3 of the Reserve Bank of India Act, 1934, who is authorised by Reserve Bank of India for the issue of bonds. 

   The authority for accepting Annual Information Return

   The Annual Information Return is required to be furnished to the Commissioner of Income Tax (Central Information Branch) under Rule 114 E (3). It is also provided under the rule that where the CBDT has authorised an agency to receive AIR on behalf of the Commissioner of Income Tax (Central Information Branch) the AIR shall be furnished to that agency.
    

6. Defective return, notice, compliances

   Section 285BA (4): Notice for defective return

   Where the prescribed Income Tax Authority considers that the Annual Information Return furnished under sub-section (1) is defective, he may intimate the defect to the person who has furnished such return and give him an opportunity of rectifying the defect within a period of one month from the date of such intimation or within such further period, the authority may grant on an application in this regard. If the person fails to rectify the defect within the time allowed, the prescribed income tax authority will treat the return as invalid and all the provisions of this Act shall apply as if such person has failed to furnish AIR.

   Section 285BA(5): Compliances in response to notice

   Where a person who is required to furnish an AIR has not furnished the same within the prescribed time, the prescribed Income Tax Authority may serve upon such person a notice requiring him to furnish such return within such period as laid down by such authority but not exceeding 60 days from the date of service of such notice.

   Penalty for late filing of AIR

   Section 271FA

   The newly introduced section 271FA provides that if the specified person fails to furnish the Annual Information Return within the time prescribed under sub-section (4) of section 285BA, then the prescribed Income Tax Authority may impose a penalty of
   Rs. 100/- for every day during which the default continues. The penalty shall, however, not be levied if there is reasonable cause for the failure.

   Conclusion
   
   The provisions of section 285BA are as of now applicable to limited number of persons. But it is possible that in the near future the scope may be expanded substantially.