The highest targets set for mopping up the arrears is set for the Mumbai region -- Rs. 1.56 lakh crore.
Alarmed
by the rising mountain of direct taxes stuck as arrears or in
litigation, the Finance Ministry has come up with incentives/rewards for
‘performance by appellate income tax officers in order to
boost
government coffers through recoveries. But finance and tax experts warn
that this essentially signals a return of the "tax terror regime" with
potentially grave consequences for the assessees. As per the Central
Board of Direct Taxes (CBDT)'s figures, a provisional amount of Rs. 11.23 lakh crore is stuck in arrears as on April 1, 2018. This is an increase from Rs. 10.52 lakh crore on the same day the previous year.
This latest figure is almost double the amount of arrears recoverable -- Rs. 5.75 lakh crore in April 2014, indicating financial and administrative mismanagement, according to the experts.
However, last year, the I-T department managed to reduce the arrears by 31 per cent by collecting Rs. 3.25 lakh crore, including a cash mop-up of Rs. 44,633 crore by April 1, 2017. Cash mop-ups or collections are those which are seized during raids.
But this ‘big achievement' in arrears reduction collapsed under an additional net current demand of Rs. 4.62 lakh crore made during 2017-2018, of which a mere Rs. 76,641 crore (including a cash collection Rs. 52,537 crore) could be recovered.
This resulted in sending warning bells ringing in the I-T officialdom.
In
order to reclaim the outstandings, the CBDT has now enhanced the
targets for Reduction in Arrears Demand (RAD) to 40 percent of the total
demand, according to a confidential Central Action Plan-2018-2019
circulated internally a few months ago.
For ensuring compliance by
the I-T Department appellate officers, the CBDT has decided to reward
them with two additional units for each quality appellate order passed
vis-a-vis the assesees.
In any tax dispute with the government,
the Commissioner of Income Tax (Appeal) -- CIT(A) -- is the first point
of appeal for the assessees, followed by the courts.
The
incentives to the CIT(A) would be based on the quality of appellate
orders to be adjudged by senior officers within three parameters --
enhancement has been made; order has been strengthened; and penalties
have been levied.
"This effectively means that the assessees will
now face the brunt of the tax authorities who could force them to pay up
their piled-up arrears, or face more stringent orders and penalties to
improve their own appraisal, besides corruption," said RTI activist J.
P. Vaghani, specialising in IT matters who also has moved public
interest litigations in the courts.
"The new CAP guidelines imply
the appellate authorities would become more aggressive against assessees
to help reduce the arrears. With elections approaching, is it practical
for them to adopt such measures on a wide scale?" Pagur Desai, a
chartered accountant told IANS.
However, Commissioner of Income
Tax & CBDT spokesperson Surabhi Ahluwalia said "there is no question
of a ‘Tax Terror Regime' and the intent behind incentivising the CIT(A)
has been completely misconstrued."
The CIT(A), the spokesman
said, was the only appellate authority who has the power to enhance an
assessment, to remove deficiencies in respect of an assessment order and
initiate penalty, wherever necessary. "Therefore, the said statutory
power/inherent power of CIT(A) does not amount to any kind of ‘Tax
Terror'," she added, seeking to allay apprehensions of stakeholders.
Stressing
on the independence of CIT(A), Katalyst Advisors Managing Partner Ketan
Dalal said they are supposed to discharge appellate functions and hence
perform judicial duties.
"The CBDT's direction for ‘quality
orders' is very unfortunate and contrary to basic tenet of independence
of appellate authorities. It will be hardly possible for them to be
independent when their career progress is impliedly dependent on their
functioning like assessing officers, rather than discharging judicial
functions," Dalal told IANS.
In August, major stakeholders like
Indian Merchants Chamber, Bombay Chartered Accountants' Society,
Chartered Accountants Association of Ahmedabad & Surat, Karnataka
State Chartered Accountants Association and Lucknow Chartered
Accountants Society in a 5-page representation to Finance Secretary
Hasmukh Adhia, slammed the CBDT move.
The I-T department, they
said, was issuing prosecution notices "mechanically to meet targets,"
for smallest of faults and "regularly causing havoc by coercive recovery
measures every year." This, they contended "created fear psychosis"
among tax-payers and foreign investors, especially since a majority of
such orders had been quashed later in courts.
"It is imperative
that necessary directives be issued by the (Finance) Ministry that no
steps be taken by CBDT whereby the actions cause harm to taxpayers and
the promise of non-adversarial tax regime is broken," said the
memorandum.
According to the CBDT, of the total 3.22 lakh appeals pending as of April 1, 2018, there are 1.96 lakh in the below Rs. 10 lakh category and includes 1.15 lakh appeals less than a paltry Rs. 2 lakh. In all, 22,256 appeals are pending for over five years.
Interestingly, the highest targets set for mopping up the arrears (RAD) is set for the Mumbai region -- Rs. 1.56 lakh crore and then Delhi -- Rs. 92,645 crore.
Apart
from action on arrears, the CBDT has set out a fresh target of 1.25
crore new return filers to be added during the current year to widen the
tax-base.