Scrutiny assessments that entail a top-to-bottom analysis of a taxpayers’ I-T transactions should be “reduced significantly” for a period of three years, a committee constituted by the CBDT to cut down litigation issues between the taxman and the assessee has suggested.
In its report submitted to the policy-making body of the I-T department, the committee has also recommended that the number of such scrutiny cases given to each Assessing Officer (AO) should be “capped” in order to make them more effective for the department and less cumbersome for the taxpayers at large.
“Reduce scrutiny assessments significantly for a period of three years to give primacy to litigation management during this period.
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“Cap the number of annual scrutiny cases per AO. The cap be kept low to allow reasonable time for enquiries and assessments,” the committee said in the report as part of “immediate measures” required to reduce litigation in the department.
The seven-member committee, headed by Commissioner of Income Tax (Legal and Research) Sunita Bainsla, had submitted its report to the Central Board of Direct Taxes (CBDT) last year in September, which has been made public now.
Top sources in the department said with demonetisation throwing a big challenge before the taxman where numerous cases could be scrutinised for suspect black money cases, the CBDT is expected to consider the views of the panel for framing latest rules for bringing future cases under scrutiny given there are new and smart tech tools to probe such instances now.
The report, while suggesting the future “roadmap” has added that “the workload of assessment should not be allowed to be increased over a pre-defined number of cases for any AO. Hence, fresh scrutiny assessments for a year should be limited based on the number of already pending cases with an officer.
“This will allow for more time for evidence gathering and writing of orders.”
The tax department has said that it only brings about 1 per cent of cases, out of crores of Income Tax Returns (ITRs) filed, under the scrutiny assessment procedure in an year and has even started a pilot-project to conduct this procedure online.
Scrutiny is undertaken when the taxman suspects that the ITR filed does not reflect the true picture of an entities’ income as compared to his expenses and matches certain other red flags decided by the CBDT every year based on the current and expected economic activity in the current fiscal.
The procedure entails furnishing of a number of records by the taxpayer to the AO that consumes more time and resources than a normal ITR filing and this subject has also led taxpayers to raise concerns of harassment and corruption in the past.
The report has also identified issues that give rise to “frivolous” litigation which includes fear of adverse administrative action by department authorities to the AO and lack of information or knowledge on judicial precedents among a number of them.
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“At present, there is no adverse consequence if an appeal is filed without merit. However, there is a possibility of strong adverse administrative consequences even if one case is erroneously left out (by the AO),” it said.
Some other grounds chronicled in the report for such ill-considered litigation include:
“In cases where there is apparent tax evasion but the order is weak in terms of the evidence collection or marshalling of facts, there is a tendency to file an appeal (by the AO) in an attempt to save the assessment and repetitive appeals to keep the issue alive” among others.
The committee has also suggested some other measures to reduce litigation in the I-T department like the taxman should “review and withdraw appeals at Income Tax Appellate Tribunals/High Courts/Supreme Court that have been made infructuous on account of later legislative changes or court rulings, adoption of alternative dispute resolution mechanisms at the stage of assessment as well as thereafter.”
It further suggested that better training and exposure of the field and best practices should be provided to the AO/I-T officials and incentivising good work in this domain by instituting a Finance Minister’s Medal.
The committee was mandated to “provide a comprehensive roadmap for minimising litigation by the department and for strengthening all aspects of litigation management”.