Social media and other modes of communication are presently carrying hundreds of comments and messages on what appears to me to be a completely unnecessary controversy viz. whether the Statement of Specified Financial Transactions (SFT) needs to be filed even if there is nothing to report. Instead of doing productive work, several people are spending enormous amount of time in discussing this matter and passing on messages to each other. This in turn is only creating a huge hype around the non existent problem. And then some people want the CBDT to “clarify” that SFT is not to be filed if there is nothing to report. There is a very big risk in asking the authorities to clarify on such matters. It is possible that the result could be completely contrary to what people expect.
This article is aimed at giving my views in the matter based on the Income-tax Act. I have always believed that a tax practitioner must first refer to the Income-tax Act and then the Income-tax Rules and then the Forms and only after that at the software or the utility that the Income-tax department expects us to use. Regrettably, many people use the reverse order and thereby get caught up in the wrong arguments and come to incorrect conclusions.
1. Section 285BA:
Section 285BA casts an obligation to furnish a statement of financial transaction or reportable account on certain categories of persons. Sub section (1) of this section lists down the categories of covered persons. Clause (k) of the sub section refers to “a prescribed reporting financial institution”.
The relevant section is reproduced below with certain parts highlighted to lay emphasis on the important and relevant words:
285BA. (1) Any person, being—
(a) an assessee; or
(b) the prescribed person in the case of an office of Government; or
(c) a local authority or other public body or association; or
(d) the Registrar or Sub-Registrar appointed under section 6 of the Registration Act, 1908 (16 of 1908); or
(e) the registering authority empowered to register motor vehicles under Chapter IV of the Motor Vehicles Act, 1988 (59 of 1988) ; or
(f) the Post Master General as referred to in clause (j) of section 2 of the Indian Post Office Act, 1898 (6 of 1898) ; or
(g) the Collector referred to in clause (g) of section 3 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (30 of 2013) ; or
(h) the recognised stock exchange referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) ; or
(i) an officer of the Reserve Bank of India, constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934); or
(j) a depository referred to in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996 (22 of 1996) ; or
(k) a prescribed reporting financial institution,
who is responsible for registering, or, maintaining books of account or other document containing a record of any specified financial transaction or any reportable account as may be prescribed, under any law for the time being in force, shall furnish a statement in respect of such specified financial transaction or such reportable account which is registered or recorded or maintained by him and information relating to which is relevant and required for the purposes of this Act, to the income-tax authority or such other authority or agency as may be prescribed.
(2) The statement referred to in sub-section (1) shall be furnished for such period, within such time and in the form and manner, as may be prescribed.
(3) For the purposes of sub-section (1), "specified financial transaction" means any—
(a) transaction of purchase, sale or exchange of goods or property or right or interest in a property; or
(b) transaction for rendering any service; or
(c) transaction under a works contract; or
(d) transaction by way of an investment made or an expenditure incurred; or
(e) transaction for taking or accepting any loan or deposit,
which may be prescribed :
Provided that the Board may prescribe different values for different transactions in respect of different persons having regard to the nature of such transaction:
Provided further that the value or, as the case may be, the aggregate value of such transactions during a financial year so prescribed shall not be less than fifty thousand rupees.
2. Rule 114E:
Now, Rule 114E of the Income-tax Rules, 1962 is relevant for this purpose. The opening lines of this Rule are relevant. They are reproduced below with the important parts highlighted in bold font:
114E. (1) The statement of financial transaction required to be furnished under sub-section (1) of section 285BA of the Act shall be furnished in respect of a financial year in Form No. 61A and shall be verified in the manner indicated therein.
(2) The statement referred to in sub-rule (1) shall be furnished by every person mentioned in column (3) of the Table below in respect of all the transactions of the nature and value specified in the corresponding entry in column (2) of the said Table in accordance with the provisions of sub-rule (3), which are registered or recorded by him on or after the 1st day of April, 2016, namely:—
In the Table given in Rule 114E, there are three columns. The first column is for serial number. The second column is for the “Nature and value of transaction” and the last column is for the “Class of persons (reporting person)”. All the entries in this table have a threshold limit. For example, entry no. 11 requires “Receipt of cash payment exceeding two lakh rupees for sale, by any person, of goods or services of any nature (other than those specified at Sl. Nos. 1 to 10 of this rule, if any.)” to be reported.
3. Conjoint reading of the section and the relevant rule:
Therefore, it is clear from the above that:
a) Only certain specified persons are covered by the section 285BA;
b) Only certain types of transactions which are prescribed are covered by the section 285BA;
c) The Proviso to section 285BA gives power to the CBDT to prescribe different values for different transactions in respect of different persons having regard to the nature of such transaction;
d) In pursuance of these powers, Rule 114E has been notified by the CBDT;
e) In the Rule 114E, the specific transactions are prescribed and for each type of transaction, threshold limits are prescribed;
f) As per the Rule 114E, out of the covered transactions, it is only those transactions which are in excess of the threshold limits given in Column (2) of the Table in Rule 114E which are required to be reported in the Form 61A.
Based on the above, it is therefore abundantly clear that even if a person is specified in section 285BA, if that person does not have any transactions which are covered by section 285BA, that person does not need to file a Form 61A. Similarly, even if such person has entered into transactions which are covered in the section, if the threshold limit given in the Table in Rule 114E is not crossed, then too such a person is not required to file Form 61A.
Therefore, in my view, the controversy that has arisen in the minds of a few people is unwarranted. As long as there are no transactions in excess of the threshold limits, filing of Form 61A under section 285BA read with Rule 114E is not mandatory.
5. Preliminary Response
Many assessees who have been subject to tax audit in A.Y. 2016-17 have received emails from the income-tax department seeking a preliminary response. The CBDT has also issued a Press Release dated 26th May which says that “In case there are reportable transactions for the year, the reporting person/entity is required to register with the Income Tax Department and generate Income Tax Department Reporting Entity Identification Number (ITDREIN)”
The Press Release further says that “The registration of reporting person (ITDREIN registration) is mandatory only when at least one of the Transaction Type is reportable. A functionality "SFT Preliminary Response" has been provided on the e-Filing portal for the reporting persons to indicate that a specified transaction type is not reportable for the year.”
A prima facie reading of this Press Release makes it very clear that unless there is something to report, a person who is otherwise covered by section 285BA but who has nothing to report is NOT required to submit Form 61A. However, it appears that the government wants all such persons (who are otherwise covered by section 285BA but who do not have anything to report) to submit a Preliminary Response. In my opinion, even this is not in consonance with the Act and the Rules. However, because this is now clearly mentioned in the Press Release, it appears that all such persons should, at least, submit the Preliminary Response. In short, if a person is covered by section 285BA(1) then such person should submit the Preliminary Response.
Interestingly, the options of answers to be given in the Preliminary Response are:
· Nil Transactions
· Not Applicable
It has been brought to my notice by some people that this “Not Applicable” was the reason why doubts arose in the minds of many about the requirement for filing the form even if there were no transactions. Initially, “Nil Transactions”, I am told, was not included as an option. Irrespective of these issues, I am of the view that notwithstanding the option of “Not Applicable” being available, the fundamental concept that one must first see the section and the rule to find out if one is covered or not remains. One cannot base one’s answer on an option provided in a utility of the income-tax portal.