Synopsis–Unsure of the consequences of ignoring summons beyond a penalty of Rs 10,000, many of them are reluctantly meeting the officers in Mumbai’s Air India building and Scindia House offices of the tax investigation arm. Some are seeking more time citing their difficulty to travel amid a lockdown and rising Covid positive cases.
After illness and death, the other grim reality of life is tax–as many who masked earnings and dodged taxes are realising in the middle of a Covid-19 second wave.
The investigation wing of the Income tax (I-T) department has been summoning people whose names have been tipped off or have cropped up in the course of an enquiry, to physically appear to respond to their questions.
Unsure of the consequences of ignoring summons beyond a penalty of Rs 10,000, many of them are reluctantly meeting the officers in Mumbai’s Air India building and Scindia House offices of the tax investigation arm. Some are seeking more time citing their difficulty to travel amid a lockdown and rising Covid positive cases.
Unlike regular tax assessments, there is no provision for faceless ‘proceedings’ for tax investigation matters. Also, unlike criminal laws, there is a limitation of statute under tax laws which require enquiries to be completed before they are time-barred.
According to Mumbai-based chartered accountant Shardul Shah, “Income tax is governed by a central law and the tax department has to complete work in a time-bound manner. While we understand the compulsions, I think health and safety come first under the current circumstances. So all information should be shared online with the tax investigation department or through a video conference to avoid physical meetings. If possible, all deadlines should be extended by 3 to 6 months.”
Compared to normal assessments, investigation may involve tracking transaction trails, checking the authenticity of investments, and cross-checking the information on foreign bank accounts and offshore trusts under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of tax Act, a law that came into force on April 1, 2016.
Before they act, the investigation wing examines information from various sources like suspicious transaction reports generated by banks and tax evasion reports based on details shared by informants, corporate rivals, disgruntled employees, and whistleblowers.
Has to chase stiff revenue targets
Certain matters are sensitive and demand immediate attention. “About 400 tax officials in Mumbai were infected by Covid. We are working despite all the difficulties. My colleagues have carried out search and surveys with their masks on,” said a senior official.
Given the nature of the work, officials in the investigation department would like to look in the eyes and observe the body language of people they summon. “Such investigation may require the use of certain interrogation techniques which can only be undertaken if an assessee or his lawyer is physically present. There could be counter-questioning. Facial expressions matter,” said Mitil Chokshi of Chokshi & Chokshi.
While often criticised for their alleged highhandedness, the I-T department (along with the GST) has had to chase stiff revenue targets laid down by the government. Indeed, the country’s net direct tax collection for 2020-21 has been Rs 9.45 lakh crore—almost 5% higher than the revised estimate (RE) in the Budget.
There are several matters which the department has to close by April. “While the investigation wing generally does not deal with any provisions of the I-T Act where there is pressure related to time barring, there may be cases where the investigation wing has to send information to the concerned Assessing Officer who is dealing with a time barring matter. In this situation the wing may be justified for enforcing attendance but for the rest of the matter the physical presence can be deferred / avoided,” said senior chartered accountant Dilip Lakhani.
But in view of the extraordinary pandemic situation, taxpayers should be given the option to either be present physically or interact over video conferencing or through virtual hearing, felt Sudhir Kapadia, president of Bombay Chambers of Commerce & Industry. “Right of life of the taxpayer will get compromised if the tax department insists on personal appearance in these pandemic times,” he said.
Over the past few years, the tax department has been trying to do an image makeover—sending text messages congratulating assessees who pay on time, softening the harsh language in notices, and in many cases quickening refunds. “But the investigation wing deals with cases where they strongly suspect evasion. They have to pursue them,” said another official.
A CBDT spokesperson did not respond when ET asked whether it’s justified to summon assessees when the state government restricts movements and declare a partial lockdown.
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