The taxpaying public expects the officers and staff of the Income-tax Department to be courteous, fair and reasonable in performing their duties while administering the Income-tax Law.
2. The present Government appears to be seriously concerned with the image of the Department. It is keen to develop a non-adversarial tax regime, that is easy, effective and efficient, where the tax officers and the taxpayers discharge their respective functions and perform their duties in harmony with and mutual respect of each other. To develop a non-adversarial tax regime, the Central Board of Direct Taxes (CBDT) has recently been highly proactive. Nearly thirty instructions have been issued from time-to-time since July, 2014. Some of the old instructions have been revised, consolidated and issued vide office memorandum No. 279/Misc/52/2014-15 dated 7-11-2014. The following aspects of developing a tax friendly and non-adversarial tax regime have been specifically highlighted therein:
(i) Observing punctuality and cleanliness as the basic requirements of an efficient and taxpayer centric organisation.
(ii) Honouring appointments given to the taxpaying public which should not be cancelled or postponed without any unavoidable reason.
(iii) High-pitched assessments should be avoided. It is the responsibility of the supervisor of the tax officer to ensure improvement in quality assessment by issuing directions u/s 144A of the Income-tax Act. The Principal Commissioners of Income-tax (CsIT) and the CsIT are required to supervise the work of their subordinates to ensure due discharge of their functions.
(iv) The Board’s Instruction Nos. 15 and 16 of 2008 dated 4-11-2008 provides for the inspection of the scrutiny assessment orders by the supervisor of the tax officer on a quarterly basis and lays down the procedure. The supervisory authorities are required to ensure that these instructions are followed both in letter and spirit.
(v) The scope of enquiry in cases selected for examination through CASS system should be limited to the verification of the pre-determined issues only. For making a comprehensive examination of the accounts, prior approval of the Principal CIT/DIT is necessary.
(vi) Refunds of excess tax may be granted notwithstanding a mismatch of data pertaining to tax deducted at source, and based on evidentiary documentation submitted by the taxpayer in accordance with CBDT’s Instruction No. 5 of 2013 dated 8-7-2013.
(vii) Recovery of tax demand, its stay of collection or permitting payments in installments should be done in accordance with CBDT’s earlier Instruction No. 1914 of 1993 dated 2-12-1993.
(viii) The CIT (Appeals), while remanding the case to the tax officer should specify the aspects which need to be verified.
(ix) Even where the tax effect is above the threshold limits set by the CBDT (above ` 10 lakhs now), the second appeal by the Department to the Income-tax Appellate Tribunal should be filed only if there is a good chance of winning on the merits of the case.
(x) Decision to file an appeal by the Department to the High Court on a substantial question of law will be taken by a collegium of two Chief Commissioners of Income-tax (CCsIT) including the jurisdictional CCIT.
(xi) Taxpayers’ grievances should be disposed off within the time period specified under the Citizens Charter.
(xii) Issuance of summons by the tax officers for gathering information should be issued only in critical cases, specifying in the summons the matter in issue and whether the taxpayer is called as a witness or in connection with his own case.
3. The CBDT has also advised the officers to follow the above instructions scrupulously. Disciplinary action will be initiated if they are not adhered to.
4. The latest instructions as summarised above were issued on 7-11-2014. Unfortunately, even after more than one year, very little change in the overall conduct of the officers is discernible by the taxpayers in the discharge of their duties and responsibilities. We, therefore, need to look into the basic causes which are responsible for the inadequate response to the emphasis being given towards developing a non-adversarial tax regime.
Ten action points for 2016-17
5. In order to improve implementation of the goal of a non-adversarial tax regime and make the overall conduct of the offices more taxpayer friendly, ten points are identified for action by the CBDT during the F.Y. 2016-17 and for public debate and discussion. Each of them also provides its own justification.
(i) Fix realistic revenue collection targets
6. The fixation of unrealistic annual revenue collection targets is the main cause of the present adversarial system of tax administration and comparatively ineffective supervision and control by the senior officers. The targets should not be fixed with reference to the expenditure requirements of the Government or with a view to reduce fiscal deficit to a pre-targeted level but they should be fixed on the basis of scientific forecasting techniques. In the past, the revenue targets used to be prepared by CBDT keeping in view the past trend of tax collections and the expected increase in national income during the year. The estimates prepared by the CBDT used to be reviewed by the Department of Economic Affairs in the Central Government’s Ministry of Finance. No other consideration weighed in fixing the targets. If the expenditure requirements were larger than the expected revenues, additional levies were imposed through the annual Finance Act.
7. With the artificial high revenue targets allocated down the line up to the level of each tax officer, unfair and unauthorised means become necessary by making unrealistic assessments, enforcing recovery of disputed taxes by coercive methods, non-issue of tax refunds for indefinite periods and by several other undesirable means. The supervisory officers are not able to exercise effective control over their subordinate officers as they become equally responsible for collecting the unrealistic targets. The Computer Processing Centre does not process returns involving large tax refunds. They are processed after a long interval and refunds issued with the prior approval of the CIT or the CCIT depending upon the quantum of the refund involved. The recent instruction issued in 2015 to issue all refunds up to ` 50,000/- is also symptomatic. Why should even a single refund, irrespective of its size, be withheld and not issued to the taxpayer? It is his right. How can the mandatory and legally binding requirement of issuing every refund within a reasonable time of say three months, contained in section 240 of the Act, be enforced except by the taxpayers filing writ petitions in the High Courts and thereby incurring avoidable litigation, expense and spoiling relations with the Department?
(ii) Amend Prevention of Corruption Act
8. The Prevention of Corruption Act needs to be immediately amended to clarify the difference between graft and a genuine error in decision making. The fear of bona fide quasi-judicial decisions being criticized and action taken under the Prevention of Corruption Act is one of the principal demoralising factors preventing the fair exercise of judicial discretion by the officers.
(iii) Preventing legal disputes in assessments
9. The tax disputes on questions of law have been raised by filing appeals by the Income-tax Department. This is despite CBDT’s instructions and the fact that the Supreme Court and various High Courts have held that where an appeal on a question of law has not been filed to the High Court or an SLP (Special Leave Petition) to the Supreme Court by the Income-tax Department, it cannot be filed in a subsequent case. But even then the appeals/SLPs are filed in several subsequent cases.
10. The remedy lies in the Legal and Research Wing of the Income-tax Department, which is responsible for authorising departmental SLPs to the Supreme Court, after consulting the Ministry of Law to circulate Board’s decision on a legal issue decided by the High Court in the form of a quarterly bulletin for the use of officers and the taxpayers alike. This practice used to be followed in the past by the issue of quarterly Tax Bulletins by the CBDT but for inexplicable reasons, discontinued in about the 1970’s. Apart from reducing tax litigation, the revenue collections will also improve because about 99% taxpayers, who are not selected for scrutiny assessment, will, by and large, follow Board’s view on the questions of law in filing their tax returns to avoid their subsequent selection for detailed examination. The recent decision of the Board to make two Chief Commissioner in multi Chief Commissioners’ charges to agree to the filing of the appeal to the High Court will also become more effective and serve the purpose of reducing tax litigation if they are made aware of the CBDT’s views on the earlier cases decided by the High Courts/Supreme Court. Where a judgment of the Apex Court is not acceptable to the CBDT, it should be so stated and the tax payers informed that the law will be amended on that issue in due course.
11. Fortunately, the CBDT has recently set up a separate Unit at New Delhi to apprise the officers of the decision of the Government on every substantial question of law decided by a High Court and the Supreme Court of India. The communications of this unit should also be made available to the public as was the practice in the past.
12. In every appeal/SLP filed by the Department to the High Court/Supreme Court, every earlier adverse judgment quoted therein should be commented as to whether any SLP against it was filed to the Supreme Court or not. In fact, the High Courts and the Supreme Court should not admit a departmental appeal unless the proposed action is taken by the Department.
(iv) Encourage settlement of cases through Income-tax Settlement Commission
13. There are seven Benches of the Income tax Settlement Commission, each consisting of three senior CCsIT, who, u/s. 245B(3) of the Act, are appointed by the Central Government amongst persons of integrity and outstanding ability, having special knowledge of, and, experience in, problems relating to direct taxes and business accounts. The Commission passes orders of assessments by agreement with the applicant-taxpayer within 18 months of the end of the month in which the settlement application is filed. The applicant has to make a true and full disclosure of his income and pay the entire tax and interest before filing the settlement application. The orders of settlement are final and conclusive as provided in section 245-I of the Act. This optional route of avoiding tax litigation and improving tax collections is very promising and should be encouraged.
14. At present, the intake of settlement applications is inadequate. It will substantially increase if the following four steps are taken:-
(a) Immediate withdrawal of the departmental instructions by the CBDT, requiring the CsIT to evaluate each order of settlement passed by the Commission and file writ petitions to the High Court wherever the orders are not considered acceptable. There are instances where even the jurisdiction of the Commission to admit a settlement application has been challenged in a writ petition and the matters are pending in the High Courts/Supreme Court for years on end. Such instructions tantamount to the Department expressing lack of faith and confidence in the judgments of its own senior officers of the Department. This is particularly so when they compute the income in accordance with the provisions of the Income-tax Act and the Department is represented by a very senior departmental representative of the rank of a Commissioner of Income-tax at every stage of the case before the Commission right from the admission of the application to the passing of the final order of settlement. Apart from withdrawing the aforementioned instruction, the pending writ petitions particularly on jurisdictional issues need to be withdrawn forthwith.
(b) Issue of clarifications on contentious issues of procedure.
To avoid litigation and ensure certainty and predictability with regard to the admission and disposal of settlement applications, there is an urgent need to issue clarifications on contentious issues in consultation with the Ministry of Law.
(c) Encouraging taxpayers to settle their tax liabilities.
Recently, the Central Board of Excise and Customs, under the same Department of Revenue as the CBDT, has issued Instruction vide letter F.No. 275/72/2014-CX.8A dated 19-6-2015 requiring all Chief Commissioners of Central Excise, Customs and Service-tax to issue, in every case, immediately after the issuance of a show cause notice, a separate letter to the noticee taxpayer informing him about the scheme of the settlement of cases so that he may avail of the same if he so desires and does not indulge in avoidable tax litigation with the Department. The format of the letter has also been attached with the said instruction. It is a very important step to prevent tax ligation. In order to create similar awareness about settling the tax liabilities on the income tax side by the Income tax Settlement Commission, the CBDT should also require the tax officers to issue similar letters in search cases after notices u/ss. 153A/153C of the Income-tax Act are issued. Other potential tax litigation cases involving contentious issues of doubtful benefit to the Revenue e g., bogus cash credits, bogus investments in company shares etc. should also be covered for encouraging settlements by the Commission.
(d) Encouraging taxpayers with undisclosed foreign bank accounts to file settlement applications.
There are several hundred cases, which became known to the Government before 1st July, 2015, of the taxpayers having undisclosed foreign bank accounts or assets. They were not eligible to file declarations u/s. 59 of the Black Money (Undisclosed Foreign Income Assets) And Imposition of Tax Act, 2015. But they were eligible to file settlement applications where detection had taken place before the coming into force of the said Act to assess the said income was taken or could be taken under the Income- tax Act, 1961 in which the legal provisions for settlement existed in Chapter XIX-A of the Act. In several cases criminal prosecutions have been launched and the Commission cannot grant them the immunity. Since such persons could not avail of the benefit of the declarations u/s. 59 of the said Act, it is only fair that they should not be denied the benefit of paying their due tax and interest before the Commission. On filing of settlement application and payment of tax and interest, the prosecution complaint, if filed, should be withdrawn. The Government may give such an assurance in the interest of revenue and to avoid prolonged criminal litigation.
(v) Time bound redressal of grievances through digital control
15. The Government is seriously concerned with the redressal of grievances within a time-bound programme. For this purpose, instructions are being issued from time to time, the latest being the immediate issue of refunds of up to ` 50,000/-. Non-issue of refund is not the only grievance. There are many others. To name a few, they are:-
(a) Not giving the correct credit for prepaid taxes.
(b) Delays in giving effect to appellate orders.
(c) Ignoring issue of refunds for years together.
(d) Issue of refunds without inclusion of interest payable thereon.
(e) Where refund with interest is given, tax deducted at source is rarely included in Form 26AS of the taxpayer who does not get the credit in his assessment of the relevant year.
(f) Non-adjustment of moneys seized during the course of search that remain deposited in the personal deposit account of the CIT indefinitely.
16. Most of the taxpayers consider them as kneejerk reactions, expressed through occasional instructions of the CBDT. They are not complied with as a matter of routine in every case in the absence of an effective and functional system of accountability. The redressal of grievances of every type should be controlled through a computer. Every grievance could be filed on line and registered in the computer system of the Department. A number for every grievance should be immediately generated by the computer that should be communicated to the taxpayer. He should also be informed of the likely time for the redressal of his grievance with the name of the person and his e-mail particulars to whom he should contact if the grievance is not redressed. Normally, the control over the redressal of the grievance should be exercised by the immediate superior officer of the tax officer as also by the CIT or the CCIT. Non-redressal, without a reasonable cause, should be a black mark, both in the career growth of the tax officer as well as of his superior, besides exposing them to other consequences.
(vi) Copy of order sheet entry to be attached with each assessment order
17. Despite instructions that the scrutiny in CASS selected cases should be confined to the items identified by the computer, scrutiny is made, in most of such cases in a routine manner and seeking large amount of information from the taxpayer. Assessments are made in most of the cases towards the fag end of the limitation period for making the assessments. A lot of time is spent in appeal proceedings on the issue of whether or not a reasonable opportunity was given to the assessee to produce the required material or not and whether additional evidence under Rule-46A of the Income-tax Rules, 1962 should be admitted at the appeal stage or not. by the tax officer. Remand reports are routinely called for by the CsIT resulting in avoidable delays in the disposal of appeals. It is suggested that the tax officer should be made to attach an attested photo copy of the order sheet along with the assessment order which will, inter alia, state the issues that were thrown up by CASS and were required to be verified. This will considerably reduce the scope for making unrealistic assessments and avoid the consequent tax litigation.
(vii) Encouraging the filing of voluntary returns
18. There are lakhs of taxpayers who do not file tax returns and pay their taxes voluntarily. The main fear is harassment at the hands of the tax officers. Once the prospective taxpayer comes on the record of the Department, the harassment consists not only of making unrealistic assessments but also involve levy of penalty and criminal prosecution. Even the foreign companies, who file their returns of income voluntarily are being proceeded against for prosecution. The fear of criminal prosecution is the biggest discouragement for the prospective taxpayers to file their tax returns voluntarily and pay their due taxes. It is suggested that through a public notification, the Government should make it clear that persons filing their tax returns voluntarily will not be criminally prosecuted. Where prosecution proceedings are under contemplation, they should be dropped and where such proceedings have been launched, they should be withdrawn with the permission of the Courts.
(viii) Make one year’s time limit for disposal of First Appeal subject to administrative control u/s 250(6A) of the Act
19. Sub-section (6A) of section 250 of the Act provides time limit “for disposal of appeal within a period of one year from the end of the financial year in which the appeal is filed, wherever it is possible”. The expression “wherever it is possible” has made the provision virtually meaningless with regard to the time limit for disposal of appeals. Most countries regard the First Appeal (normally called “objection against assessment”) as an extension of the process of determination of tax liability by the tax officer and the process is completed within a few months. In our neighbouring country- Bangladesh, which had the same income-tax law as in our country till 1947, the First Appeal is deemed to be allowed if not disposed of within 150 days of the end of the month in which the appeal is filed. No disputed tax is required to be paid. [Please refer to section 156(6) of the Income-tax Ordinance, 1984 of Bangladesh].
20. Unfortunately, in our country, in many cases, it takes several years as much as 10 years or more, for the First Appeal to be disposed of. We, in India should, like in other countries, take effective steps towards recognising the right of every taxpayer to know his final income-tax liability within a reasonable time since income tax is an annual tax. It is suggested that the period of one year should be made mandatory and wherever the appeal is not disposed of, it should be deemed to have been allowed unless the Chief Commissioner of Income-tax, for reasons to be recorded in writing, specifies that the appeal, though fixed for hearing, could not be disposed of within the stipulated period for reasons beyond the control of the CIT(A). Similar recommendation has also been made by the Tax Administration Reforms Commission to the Government.
(ix) Provide specific appeal to the Tribunal against refusal to grant stay of disputed tax by the CIT(A) even without the pendency of the quantum appeal – section 253
21. Coercive action to effect recovery of the disputed tax by such draconian methods like attachment of bank accounts without prior notice, even while the appeal is pending before the CIT(A), has been a source of major tax litigation. This is also perhaps the biggest source of harassment and spoiler of the fair name of the Income-tax Department. Following the judgement of the Hon’ble Supreme Court in the case of ITO v. M.K. Mohammed Kunhi (1969) 71 ITR 815 (SC), several High Courts have held that the CIT(A) has also the inherent and implied powers to grant stay/instalments arising out of the assessment order in appeal before him, till the disposal of appeal by him, though it is not specifically mentioned in the statute. Some of the judgments are as under:-
(i) V. N. Purushothaman v. Agricultural ITO (1984) 149 ITR 120 (Ker.)
(ii) Prem Prakash Tripathi v. CIT (1994) 208 ITR 461 (All.)
(iii) Debashis Maulik v. CIT (1998) 231 ITR 737 (Cal.)
(iv) Smita Agarwal v. CIT (2010) 321 ITR 491 (All.)
(v) Jagdish N. Hinduja v. CIT (2011) 59 DTR 333 (Karn.)
(vi) UTI Mutual Fund v. ITO (2012) 345 ITR 71 (Bom.)
(vii) Maheswari Agro Industries v. UOI (2012) 346 ITR 375 (Raj.)
22. Unfortunately, the CsIT(A) are routinely rejecting the stay applications leaving the assessees totally at the mercy of the tax officers or forcing them to take a highly expensive route of filing writ petitions before the High Court. Recently, the Hon’ble Delhi Bench of the Income Tax Appellate Tribunal, in the case of Employees Provident Fund Organization, ITA No. 1766 dated 10-4-2015 (2015) 153 ITD 642 (Del.), has held that an assessee can file an appeal to the Tribunal against the refusal of the CIT(A) to grant stay even though quantum appeal has not been filed before it.
It should be provided, in law, that there shall be no collection of disputed tax till the disposal of the First Appeal by the CIT(A). Section 281B providing for provisional attachment to protect the interest of revenue is adequate against the alienation of interest in the assets of the tax payers during the pendency of the appeal. This will also ensure that high demand appeals are disposed of expeditiously.
23. Alternatively, to place the matter beyond any doubt, the law should be amended to give specific power to the CIT(A) and the administrative CIT to decide the stay application of the assessee pending disposal of appeal before him. This will require consequential amendment to section 220(1) withdrawing the power of granting stay/instalment where the assessee has filed an appeal before the CIT(A). The Assessing Officer will of course continue to exercise the power to grant stay/instalment in cases where no appeal has been filed before the CIT(A).
24 Section 253 of the Act may be suitably amended to provide for an appeal before the Tribunal against the CIT(A)’s order refusing to grant stay of demand even if the quantum appeal has not been filed before the Tribunal and is pending with the CIT(A).
25. Pending amendment of law, stay of recovery of disputed tax demand should be granted by the Assessing Officer till the disposal of the First Appeal where the assessed income is say more than twice the returned income. This is in accordance with Board’s own Instruction No. 96 dated 21-8-1969. It has been held by several High Courts that this Instruction is not superseded by Board’s subsequent Instruction No. 1914 of 1993 dated 2-12-1993. Following are some of the judgments where it has been so held.
(i) N. Rajan Nair v. ITO (1989) 165 ITR 650 (Ker.);
(ii) Mrs. R. Mani Goyal v. CIT (1996) 217 ITR 641 (Del.);
(iii) I.V.R. Constructions Ltd v. ACIT (1998) 231 ITR 519 (AP);
(iv) Volvoline Cumins Ltd. v. DCIT (2008) 307 ITR 103 (Del.);
(v) Soul v. DCIT (2010) 323 ITR 315 (Del.) and
(vi) Taneja Developers and Infrastructure Ltd v. ACIT (2010) 324 ITR 247 (Del.)
None of the judgments appears to have been appealed against to the Supreme Court by the Income Tax Department and, therefore, they represent the law of land. In order to avoid needless litigation, Board may issue Instructions to the tax officers stating that Board’s Instruction No. 96 of 21-8-1969 should be followed and where stay has been granted, the CsIT (A) must dispose of the appeal within a year of its having been filed.
(x) Write off and scaling down of tax arrears
26. More than ` 8 lakh crores of income tax arrears are outstanding. This figure is increasing by 15 to 20% every year. With the enlarged scope of computerisation and taking over of several functions by the computers, the officers can devote some time on a regular basis to attend to the scaling down and writing off of irrecoverable tax arrears. It will also bring in the much needed revenue to the Government. Most of the tax arrears are the consequence of high pitched assessments which the defaulters may pay, in part, as full and final settlement of the tax arrears due from them. This is referred to as the scaling down of the outstanding demand. Then there are the cases where taxpayers have suffered losses or otherwise the tax arrears are irrecoverable in the absence of any assets out of which, recovery can be effected. There is no provision in the Income-tax Act for write off or sealing down of tax arrears. However, In 1956, the then Union Cabinet under the Prime Ministership of Late Shri Jawahar Lal Nehru had approved the writing off of irrecoverable tax arrears and scaling down of unrealistic demands to a reduced figure depending upon the value of the assets of the defaulters. The scaling down is subject to a true and complete statement of assets of the defaulter and if some more assets are found later on, the order of scaling down becomes inoperative. In respect of write off of irrecoverable demand, the Department does not lose its legal right up to the period of limitation provided in the Limitation Act to recover the demand if some assets are found. The CBDT used to write off the irrecoverable demand and scale down the arrears where part recovery of tax was possible. With the vast increase in the number of defaulters and the size of tax arrears, the writing off/scaling down work has practically stopped. The recoverable content of the tax arrears is also being ignored. It is suggested that the Principal CCsIT being of the rank similar to that of the members of the CBDT, this work can be delegated to them after getting approval of the present Union Cabinet. Only cases, say with tax arrears of ` 50 crores and above, may come to the Board for being written off/scaling down. This will ensure improvement in collections and more importantly, cleaning up of the accounting records of the Income-tax Department.
27. We have mentioned the 10 action points above which, if implemented in the F.Y. 2016-17, will go a long way in improving the conduct of the officers towards the taxpayers and in promoting the non-adversarial tax regime in the Department which is the top most priority of the present Government.
[Source: Article printed in Souvenir of one day seminar organised by ITAT Bar Association, New Delhi on 16th January, 2016]