Any communication from the income-tax department brings anxiety to the taxpayer, even if everything is in order. The I-T department has always had an impression that it is a stringent body of the government following an adversarial regime. Retrospective amendments to the law, imposition of tax targets on inspectors, fishing enquiries by tax officials and prolonged litigation are few instances of tax terrorism in India.
Acknowledging the existence of tax terrorism, the finance minister addressing a corporate forum said, “tax terrorism prevailing in the country is dangerous. One can’t run the government by thinking that everyone is a thief”. The adversarial approach adopted by the taxmen has not only led to an increasing number of tax disputes and perverse assessments but has also instilled fear among taxpayers and created impediments for the foreign investors, impacting India’s reputation globally.
To create a taxpayer-friendly system and helpful tax environment, the government is taking steps in this direction. Rationalisation of tax provisions, simplification of I-T return forms, faster processing of refunds, speedy resolution of grievances, reducing unnecessary litigation and penalising careless tax officers are some constructive steps to culminate the threat of taxmen and at the same time making India a more tax-compliant society.
This objective is now finding support from the judicial system as well. Recently, the judiciary took steps to discourage actions of the revenue department that impacted taxpayers unfairly. The Bombay High Court recently imposed a penalty on the tax officer for adjusting the refund against the demand, without giving a prior notice, by assuming that “notice must have been served by his predecessor officer”. The court rebuked the tax official for the lapse and held him responsible for the unnecessary litigation and wastage of precious time of the judiciary. The court condemned the act of overlooking facts to the detriment of public interest and established that a tax officer can’t act carelessly and should ensure that all the procedural requirements are complied with, lest he should suffer the consequences.
Another attempt, where the judiciary proved that they shall support the honest taxpayers was admission of the writ petition filed by the All-India Federation of Tax Practitioners, challenging the central board of direct taxes (CBDT) action plan to incentivise CIT(A) for every ‘quality order’ passed by them. Quality order includes the cases where enhancement is made or revenue’s case is strengthened or CIT(A) levies penalty. The federation alleged that the impugned incentive would have created a bias in favour of the I-T department and would have had serious repercussions on its independence and impartiality. Acceptance of the writ petition demonstrates the judiciary’s intention to discourage any step that could be construed as harsh or against an honest taxpayer’s interest.
The government’s effort to favour the genuine taxpayers is showcased well in the ruling of the Karnataka High Court. The court reprimanded the tax officer for attaching taxpayer’s bank account to recover the entire tax demand immediately upon CIT(A)’s confirmation of assessment order, without waiting for appeal period to expire as statutorily provided by the law. It ordered the tax officer to refund the entire tax amount to the taxpayer within 7 days, failing which the taxpayer could approach the court to take necessary action against the tax officer. The order has fostered faith of the people in the judiciary that gone are the days of undue harassment to the taxpayers.
Further, establishing its point, the apex court too, imposed a fine of Rs 10 lakh on the I-T department for presenting false and misleading facts before it. The commissioner of income tax had not been able to explain the delay of 596 days in filing the petition and had filed a misleading statement about pendency of the appeal. Shocked by the casual approach of the commissioner of income tax, the court dismissed the petition, imposing penalty of Rs 10 lakh to be paid within 4 weeks.
One of the key ways to improve the taxation system is to instill confidence in the taxpayer about the I-T department. People abstain from undertaking tax compliances fearing that it would bring more hassles for them in future. The government has been addressing these concerns of the taxpayers by introducing measures that ensure strictness only for non-compliant class and making life simpler for honest taxpayers. Public expects highest degree of efficiency and expediency from the tax officials, thereby casting responsibility on them to act skillfully and professionally. The judicial system is giving its acceptance to this view by taking action against the tax officer who deviates from the objective of providing fair treatment to the taxpayers.
The current government has promised to provide a cooperative, non-hostile and conducive tax ecosystem. Recent rulings of courts instill our trust in the officials. It has been made clear by the rulings of the apex court and the high courts that the taxmen causing undue bother to taxpayers shall not be spared and stringent action shall be taken. With the government trying to overhaul the dispute resolution system and making an effort to simplify tax laws by issuing clarifications and refurbishing old tax provisions, it wouldn’t be wrong to say that the days of tax terrorism would soon be gone.
(The writer is executive director of Nangia Advisors)