IT’s RAID SEA­SON

THE LONG ARM OF THE TAX­MAN JUST GOT LONGER, AND MORE THAN 60,000 PEO­PLE HAVE BEEN TAGGED FOR AU­DITS AND IN­VES­TI­GA­TIONS POST DEMONETISATION

India Today - - SPECIAL REPORT - By Sh­weta Punj

KKe­shav Lal, a Kan­pur-based ad­di­tional com­mis­sioner of sales tax, prob­a­bly did not ex­pect the tax­man to come knock­ing at his door. Ac­cord­ing to re­ports, in­come-tax (I-T) of­fi­cials found Rs 10 crore in cash and 10 kg of gold dur­ing the raid. In a sim­i­lar story, a gen­eral man­ager of the Ut­tar Pradesh Ra­jkiya Nir­man Nigam in Dehradun was raided for “mis­us­ing his of­fi­cial po­si­tion” and amass­ing un­taxed wealth. In the past few months, the I-T depart­ment has car­ried out a se­ries of raids like these, across the coun­try. Per­haps for the first time in In­dia’s eco­nomic his­tory, there is a cred­i­ble fear that the tax­man could ac­tu­ally get you if you’re on the wrong side of the law—or even if they have ‘a rea­son to be­lieve’ you are.

The depart­ment, once in­fa­mous for in­ef­fi­ciency and cor­rup­tion, to­day finds it­self at the cen­tre of an am­bi­tious govern­ment pro­gramme to rid the na­tion of black money. How­ever, since ar­bi­trary au­dits can lead to tax­pay­ers get­ting in­tim­i­dated—and give them an in­cen­tive to hide their wealth—the depart­ment has to find a way to hunt down ac­tual evaders while mak­ing sure they do not wind up ha­rass­ing hon­est tax­pay­ers.

That said, there are rea­sons for a more proac­tive I-T depart­ment in In­dia. Con­sider these points: In­dia’s tax-to-GDP ra­tio, at 16.6 per cent, is lower than the emerg­ing-mar­ket econ­omy av­er­age of 21 per cent. Some 37 mil­lion In­di­ans filed tax re­turns in 2015-2016. Of these, only 2.4 mil­lion de­clared an in­come of over Rs 10 lakh. Even so, an av­er­age of 2.5 mil­lion cars—in­clud­ing 35,000 lux­ury ve­hi­cles—are sold in In­dia ev­ery year.

So far, the I-T depart­ment has iden­ti­fied more than 60,000 peo­ple who have been marked for de­tailed au­dits and in­ves­ti­ga­tions. To this end, the Fi­nance Act, which was passed by the Lok Sabha on March 22, in­cluded a num­ber of amend­ments to in­crease the tax­man’s pow­ers (see box: The Tax­man’s

New Code). Among the new pow­ers granted to I-T of­fi­cers is the right to con­duct searches and seizures of an as­sessee’s prop­erty with­out hav­ing to de­clare the rea­son for do­ing so and with­out be­ing an­swer­able to any author­ity lower than a high court.

These changes have evoked sharp—and pan­icked—re­ac­tions from many quar­ters. They have also led to an in­crease in raids. For in­stance, in the past two months, some 13 jew­ellery shops in New Delhi’s Greater Kailash mar­ket have been raided. These busi­nesses al­legedly came un­der the scan­ner for re­main­ing open un­til mid­night in the days im­me­di­ately af­ter demonetisation was an­nounced on Novem­ber 8, which was seen as an in­di­ca­tion that they were help­ing those with sacks of un­ac­counted cash to turn their money ‘white’. Some came un­der the scan­ner sim­ply for de­posit­ing more than Rs 10 lakh into their ac­counts af­ter demonetisation. “These guys (I-T of­fi­cials) ha­rass you, they say ‘this is how much you de­posited (post-demonetisation), and it is not your own money... now pay up’,” says a New Delhi-based jew­eller.

Ac­cord­ing to some of the re­cently-raided jew­ellers, of­fi­cials have been book­ing as­sessees un­der the Be­nami Transactions Act if they deny hav­ing made any il­le­gal de­posits. Un­der this act, it is the of­fi­cer con­duct­ing the raid who de­cides if the ex­pla­na­tion of­fered by the as­sessee is ad­e­quate. “Even if the raid re­veals no ev­i­dence that the money de­posited was un­ac­counted for, or even if the ac­count books cor­rob­o­rate the amounts de­posited, as­sessees are be­ing forced to ‘own

up’,” says the jew­eller quoted ear­lier. “These changes will only lead to more

goonda­gardi,” he laments. No sur­prise, then, that there is a frenzy of rep­re­sen­ta­tions tak­ing place at the Union fi­nance min­istry in North Block—from many dif­fer­ent stake­holder groups—on pos­si­ble mis­uses of the new law. Their worry is that the I-T depart­ment, al­ready in­fa­mous for ha­rass­ment, will be­come com­pletely un­in­hib­ited in its depre­da­tions. ‘Tax ter­ror­ism’, as it is be­ing called, is a huge con­cern for busi­nesses, and there are those within the min­istry who em­pathise. “We are aware that this is a gen­uine con­cern,” says a se­nior min­istry of­fi­cial, speak­ing on con­di­tion of anonymity. “We are putting in place in­ter­nal checks to en­sure that such abuses of power do not hap­pen.”

A Nec­es­sary Evil?

It had to be done, say se­nior of­fi­cials at the fi­nance min­istry who are driv­ing this change. These dras­tic amend­ments—in par­tic­u­lar, the one do­ing away with an as­sessee’s right to know why they are be­ing raided—was en­acted to counter rul­ings by the Supreme Court. One case in par­tic­u­lar—DGIT (Inv) vs Space­wood

Fur­nish­ings, in 2015—led to a rul­ing that as­sessees should be pro­vided with the spe­cific in­for­ma­tion that made the I-T depart­ment sus­pect them of tax eva­sion, at the be­gin­ning of as­sess­ment pro­ceed­ings. This rul­ing was re­it­er­ated in 2016, with re­spect to another case. These two rul­ings led to some dis­com­fort in I-T cir­cles. Inevitably, they sought to re­store their own dis­cre­tionary pow­ers re­gard­ing the dis­clo­sure of ‘rea­son to be­lieve’ or ‘rea­son to sus­pect’.

The move to em­power the tax ad­min­is­tra­tion also gels with the govern­ment’s stated agenda of do­ing away with black money. For its part, the tax ad­min­is­tra­tion is work­ing to­wards putting as much in­for­ma­tion as pos­si­ble into the pub­lic do­main—nam­ing and sham­ing tax dodgers is very much part of the strat­egy. Post demonetisation, data min­ing and an­a­lytic soft­ware has also been de­ployed to track the money trails of about 1.8 mil­lion peo­ple who are sus­pected of hav­ing de­posited more into their ac­counts than their in­come should have al­lowed. Around Rs 4.5 lakh crore of de­posits have been flagged.

So what, if any, checks and bal­ances re­main to re­strain rogue tax­men from mis­us­ing the wind­fall of fi­nan­cial sur­veil­lance in the wake of demonetisation? Ac­cord­ing to se­nior min­istry sources, the an­nual per­for­mance re­view of I-T of­fi­cers has been tweaked to in­clude de­tails on how many or­ders they is­sued, if those or­ders could stand up to scru­tiny and de­tails on the due dili­gence done by the depart­ment with re­spect to those or­ders. More­over, a col­legium of three com­mis­sion­ers has been set up in each zone to deal with com­plaints. “A frame­work of ac­count­abil­ity is in place, so we don’t have to worry about the mis­use of pow­ers,” says Has­mukh Ad­hia, rev­enue sec­re­tary, min­istry of fi­nance. “Any­body is free to send a com­plaint. We would like to know about the black sheep in the depart­ment. Even if there are com­plaints of rude be­hav­iour, I will take ac­tion against them,” he adds.

For the govern­ment, track­ing down the an­tecedents of these ques­tion­able de­posits made post demonetisation is a long-term pro­ject. It has set it­self a dead­line of two years to com­plete the task. Even so, there are al­ready pos­i­tive signs. Ac­cord­ing to the Cen­tral Board of Di­rect Taxes (CBDT), there was a 21.7 per cent in­crease in re­turns re­ceived in FY ’17. Gross in­come tax col­lec­tion grew 16 per cent, the high­est in the past five years. The govern­ment is also plan­ning to go af­ter shell com­pa­nies, and a task­force at the Prime Min­is­ter’s Of­fice is work­ing on iden­ti­fy­ing the main pro­mot­ers of these com­pa­nies.

Clearly, In­dia needs a stronger tax ad­min­is­tra­tion. Along with that, it also needs the ad­min­is­tra­tion to be as trans­par­ent as pos­si­ble. There have to be ef­fec­tive checks and bal­ances, be­cause though progress has been made, there are still in­stances of bribes be­ing de­manded and ha­rass­ment be­ing used as a tool of in­tim­i­da­tion by tax of­fi­cials. “You can­not be a 1970-80s type of an of­fi­cer and speak harshly [to cit­i­zens]. The lan­guage and state­ments should be in line with the new think­ing,” says a for­mer CBDT chair­man. “We have to be a fa­cil­i­ta­tor, and not an en­force­ment agency… be­cause ul­ti­mately, you have to pro­tect the tax-payer.”

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.