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    221000_HKT para-Draft exercise-6.4.2021_20210406_073150

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    221000_HKT para-Draft exercise-6.4.2021_20210406_073150

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    Material for Draft para

    HKT Bio-Pharma Limited

    Incorrect assessment of Income Tax Liability & Advance Tax resulted in payment of
    penalty & blocking of funds

    Section 208 and 210 of the Income Tax Act, 1961 stipulates that Companies
    having taxable income had to pay tax in advance on the estimated income.

    HKT Bio-Pharma Limited (Company) is a registered Company under Companies


    Act, 1956 engaged in manufacturing of pharmaceutical products and is liable to pay
    advance tax every quarter which was equal to 15 percent by 15 th of June, 45 percent by
    15th of September, 75 percent by 15 th of December and 100 percent by 15 th of March at
    prescribed rates during each financial year, failing which, interest shall be payable under
    section 234 (C) on the short paid amount. Further, if the total advance tax paid was less
    than 90 per cent of total tax liability, interest shall be payable at the rate of one per cent
    per month under section 234 (B) of the Act, ibid on such shortfall in payment.

    The assessed income of the Company, the advance tax payable on such
    income and the advance tax actually paid during the last three assessment years ended
    2016-17 were as follows:

    (₹ in crore)
    Assessment Total Tax Payable Tax Paid Refund Advance Advance
    Year Income on total Tax Taxes paid
    income Payable including
    TDS
    2014-15 54.76 19.33 33.98 14.65 16.75 14.98
    2015-16 83.78 28.48 31.88 1.44 25.63 16.00
    2016-17 53.54 5.18 20.74 15.56 17.32 20.74

    The Company was not diligent in remitting the required advance tax liability
    as per provisions of section 234 (B) & (C) of the IT Act in any of the year.
    Consequently, the Company was liable to pay interest of ₹ 89.11 lakh under section 234
    (B) and 234 (C) of the Income Tax Act.
    It was also observed that in Assessment Year (AY) 2014-15, 2015-16 and
    2016-17, total tax paid exceeded the tax liability. An amount of ₹ 19 crore was paid
    (Sept. 2014) as Self-Assessment Tax in F.Y. 2014-15 against the total tax amount of ₹
    19.33 crore without considering the payment made as Advance Tax and TDS comprising
    of
    ₹ 14.98 crore (14.50 cr Advance tax and TDS Rs.48 lakh). During AY 2014-15, there
    was a shortfall in payment of Advance Tax in every quarter resulting in payment of
    interest under Section 234C of Rs.50.06 lakh and payment of interest due to shortfall
    under Section 234B of ₹ 21.79 lakh. An amount of ₹ 14.65 crore (AY 2014-15) was
    refunded whereas refund for AY 2015-16 and 2016-17 has not been received so far. In
    AY 2016-17 also there was a shortfall in payment of Advance Tax in every quarter
    resulting in payment of interest under Section 234C of ₹ 17.26 lakh. The TDS deposited
    for the Company was Rs.48 lakh for AY 2014-15 and Rs.74 lakh for AY 2016-17. Thus
    excess payment of total tax resulted in blocking of funds and interest thereon.
    The Company in its reply stated (November 20__) that the estimation was done on
    adhoc basis and there were lapses on their part in paying the Advance Tax. It was also
    stated that they have now put a more robust mechanism before paying taxes and the
    present system takes into account the estimated sales and probable margins based on past
    history and arrive at the likely annual tax. The Company also stated that they do not have
    a linear pattern of sales turnover which impacts estimation of profit for the year and the
    Income tax payable.
    The reply is not tenable as the Company failed to estimate its income correctly
    resulting in payment of penal interest of ₹ 89.11 lakh on the shortfall in advance tax.
    Thus, though Contractual Consultants and Tax Auditors, were appointed, Company could
    not assess its income correctly and pay Advance Tax accordingly. Besides, Sales/
    Marketing administration also failed to project the sales turnover and estimate the profit
    margin to facilitate the same.

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