An article in today’s Business Standard mentions the renewed interest the Income Tax Department is taking the compliance of Chartered Accountants with their due diligence obligations. In the case of transactions involving remission of money outside India, the Income Tax Act permits the production of a certificate from the CA stating that the transaction is not taxable in India, as a basis for permission from the RBI for the transfer of funds. However, of late, these certificates are allegedly being obtained by fraud. This has prompted the CBDT to notify the Institute of Chartered Accountants of India (ICAI) about this practice, and has brought such international transactions under further scrutiny by the I-T Department.
Given the pro-Revenue stance being adopted already by the Indian judiciary in the Hutch-Vodafone dispute, this comes as yet another indicator of the difficulty Vodafone is bound to face in avoiding the Indian tax net. The clearly prejudicial comments made by the Bombay High Court in its decision together with this possible presumption against tax avoidance by international transactions seem to have further compounded Vodafone’s problems.