The income tax department’s latest plan, to send email inquiries instead of tax notices, could, if done right, become one of the most tax-friendly moves from the department in a long time. Apart from being less aggressive since a taxpayer no longer has to go armed with all manner of information and documents to the tax official on a certain date—and perhaps be kept waiting in a queue for a long time—an email inquiry/notice is far less intimidating. For one, the responses can be worked on over a period of time, and the responses can also be drafted by your chartered accountant, with the relevant documents attached and appropriately flagged. More important, while a personal meeting with the taxman can deteriorate into an open-ended inquiry, an email notice, by its very nature, is more specific about queries. Central Board of Direct Taxes chief Anita Kapur, who talked about the plan to news agency PTI, did not spell out more details, but given the responses will all be on mail, there is a paper trail that can easily be followed when the case is being reviewed by, say, the tax official’s seniors. In other words, while the scope for discretion that personal meetings allow for will be done away with, the taxman will also need to spell out quite clearly why certain information is being called for, or why certain interpretations have been made. In fact, the questions asked by the taxman on various returns as well as the answers given should be reviewed by third parties to ensure unnecessary questions are not being asked—each email will, of course, be tagged to the relevant income tax return.
The taxman’s initiative to ensure tax refunds are issued within 7-10 days of the returns falls in the same category of being taxpayer friendly—since the IT department has adopted various modes of e-verification, it is relatively easier to make quick tax refunds. The department has received 35.4 lakh e-verified income tax returns and out of which 33.8 lakh have been linked with Aadhaar. Going forward, it is expected that the department will be able to e-verify all the taxpayers—over 3.41 crore e-returns were received in FY15 and more than 1.84 crore have been filed till August this fiscal. With the option of sending notices and receiving responses through email, a large chunk of cases may be settled without any further paperwork or physical interaction, thereby reducing the huge pendency without much of an effort or cost. This is critical since, with over 2.32 lakh appeals pending at the CIT (Appeals) stage—in March this year—over R3.8 lakh crore is locked in litigation. Another 36,564 cases are pending at the Appellate Tribunal level involving R1.5 lakh crore. Even if you leave out the more tricky cases pending in various high courts and the Supreme Court, the email notice-and-response window can be fruitfully used to deal with a substantial number of cases stuck at the appeals stage. While finance minister Arun Jaitley’s plans to deal with large retrospective tax cases like Vodafone and Cairn are important steps in fixing the taxman’s image, moves such as these will play a big role in cementing that impression.