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Additional power to taxmen: Govt to reveal reason for searches before Constitutional courts

Revenue secretary, while appearing before a Parliamentary panel, has clarified the government’s stand on the fresh provisions introduced in the Budget.

Written by Aanchal Magazine , Anand Mishra | New Delhi |
February 21, 2017 1:03:52 am
Illustration: C R  Sasikumar The Department-related Standing Committee on Finance headed by senior Congress leader M Veerappa Moily, met on February 15 to discuss the tax proposals. Illustration: C R Sasikumar

Concerns over the Finance Bill, 2017, proposal empowering tax officials to not disclose the ‘reason to believe’ to conduct a search and a possible move towards “tax terrorism” resonated at a meeting of a Parliamentary panel last week.

The Department-related Standing Committee on Finance headed by senior Congress leader M Veerappa Moily, met on February 15 to discuss the tax proposals enlisted in the Finance Bill, along with a wide range of other issues like the tax-GDP ratio, widening of tax net and the tax department’s “increased” expenditure on advertisements.

Members, including from BJP, Congress and BJD raised apprehension about “harassment” of people due to the proposed changes in Finance Bill that gives power to tax authorities to not disclose the ‘reason to believe’ for conducting a search and provides increased powers to tax officials for conducting searches and surveys. Revenue Secretary Hasmukh Adhia, however, assured the panel members saying that the reasons will be revealed to Constitutional courts such as high courts or Supreme Court even as the income tax department will not reveal them to Appellate Tribunal or persons.

Adhia is learnt to have said that the reason for the raid will be recorded and it is a misconception that there will be no record of the reasons, which will be submitted to the Supreme Court and high courts.

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At least three members of Parliament (MPs) — Digvijay Singh (Congress), Nishikant Dubey (BJP) and B Mahtab (BJD) spoke on the issue.

Mahtab is learnt to have said that the last Finance Committee had recommended to the 15th Lok Sabha that the discretion available to an Income Tax Assessing Officer for not writing or telling anyone about why they have carried out the raid, is wrong, and the reason should be provided.

The revenue secretary said that the change in the rule is being brought as income tax department is facing some difficulties. Panel members, however, said that those things have to be first discussed in the panel and the Committee will take a final call on it.

The Standing Committee members also questioned tax department officials on the steps being taken to increase tax-GDP ratio.

BJP’s Nishikant Dubey cited the decline in tax-GDP ratio from 12 per cent in 2008 and to 9 per cent later due to a fall in collection of excise, customs duties and corporate tax. A member wondered why the department, instead of plugging this loophole, is taking people towards “tax terrorism” and accusing them of not paying taxes.

He is also learnt to have asked Adhia that when the government wants to cap corporate tax at 25 per cent, why does it not consider making the maximum limit of personal income tax 25 per cent. Members were of the view that such a move would lead to a rise in compliance of tax rules and widening of the tax net.

Digvijay Singh said that the government has spent huge amount of money to the tune of Rs 190 crore to Rs 200 crore on advertisements.

Responding to it, Adhia said the government garnered Rs 25,000-30,000 crore in its kitty through Income Declaration Scheme, so what difference does it make if the government spends Rs 200 crore in publicity in that case.

He is learnt to have told the panel that the reasons for the spending by the government on advertisements is that they are spending more on publicity about IDS and GST.

“People have to be told about GST. When a new law is coming, people will have to be told,” he is learnt to have argued.

Adhia also said that globally, India spends the minimum on tax collection exercise. While India spends 0.6 per cent of its GDP on tax realisation, the average expenditure in other countries is around 1.5 per cent, he is learnt to have told the panel.

The panel took oral evidence of the representatives of the Ministry of Finance (Departments of Economic Affairs, Expenditure, Financial Services and Investment and Public Asset Management) and Ministry of Finance (Department of Revenue) on Demands for Grants (2017-18).

The Finance Bill, 2017, proposes to include an explanation to sub-Sections (1) and (1A) of Section 132 and sub-Section (1) of Section 132 A of the Income Tax Act “to declare that the ‘reason to believe’ or ‘reason to suspect’, as the case may be, shall not be disclosed to any person or any authority or the Appellate Tribunal”, leading to some apprehensions in the industry.

Also, the Budget for 2017-18 has proposed to provide the tax officials with power of provisional attachment for a period of six months with the prior approval of a senior official.

“In order to protect the interest of revenue and safeguard recovery in search cases, it is proposed … the authorised officer on being satisfied that for protecting the interest of revenue it is necessary to do so, may attach provisionally any property belonging to the assessee,” the Budget proposal said.

As of now, property of the assessee could only be attached after the assessee’s request for stay on attachment of property has been rejected by the commissioner of Income Tax. Normally, the department gives 30 days to the assessee for payment of the demand in which time the assessee can apply for stay on attachment of property.

Responding to the apprehensions of the industry leaders about increased powers to taxmen, Central Board of Direct Taxes (CBDT) chairman Sushil Chandra earlier this month had asserted that the amendedment was made “to plug the abuse” of law by tax evaders. The power for provisional attachment of property has been accorded in the Budget as tax evaders could sell off their property in the intervening time taken for preparation of investigative report, which is usually around 4-5 months, he had said.

“The power of referring the property to a valuation cell has been given to the investigative officers. The rationale behind it is that it takes 4-5 months for preparation of report when the search takes place. So some of the assessees, what they did was till the time report is being made ready, they could sell off their properties. So to plug that particular thing, the power has been given to provisionally attach the property. He cannot sell the property. Tax official can provisionally attach the property so that whenever the liability is created after that time you can pay the liability and the property will be released. It is only to safeguard the revenue,” Chandra had said.

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