Tax reassessment past deadline is a symptom

'Over the years this government, obsessed with alliterative dazzle, has talked about transparent taxation and honouring the honest', says the author

Every few days the state comes across as a vile bully in a schoolyard who takes pleasure in taking apart other helpless kids. You never know who is next; the state’s moves are arbitrary. But one department that is relentless in inventing new ways of harassment is the revenue department. Since early April, the income tax department has been sending out notices, seeking to reassess income tax liability for financial years 2013-14, 2014-15, and 2015-16. The department has decided that despite draconian measures such as disclosures, linking accounts and assets, smarter use of data analytics, widespread scrutiny, some are apparently escaping assessments of taxes. Here goes the text of a typical notice: “Dear {PAN}, Income Tax Department has issued a notice/order for AY 2013-14 under section 148. Kindly submit online response in case of notice by login to e-filing account (https://www.incometax.gov.in ), e-Filing, Income Tax Department.” Several tax experts tell me that many of their clients have got these notices despite being diligent taxpayers.

Why now? The tax department apparently does not want such suspected cases to become time-barred so it has slapped notices to initiate action. In the Union Budget for 2021, the government changed the law for reassessment proceedings or reopening completed assessments from this year onwards. The department cannot issue a notice if three years have elapsed from the end of the relevant assessment year (it is 10 years if unassessed income is Rs 50 lakh or more). The earlier time limit for this was six years. When the three-year limit was announced, everyone hailed it as another step in making the life of taxpayers easier.

The rule was supposed to come into effect on April 1, 2021, meaning that notices were to be issued by March 31, 2021, for assessment years prior to 2016-17. Tax experts hoped that reassessment notices would focus on high tax transactions or big mismatches rather than going after smaller taxpayers because one naively expected that the intent of the department was to reduce tax litigation. Not surprisingly, this hope was belied. First, the department has, on its own, extended the time limit of the old law to June 30, 2021. The old law allowed reopening assessments for the previous six years, even though, this law lapsed on March 31 in accordance with the amended Finance Bill 2021. Secondly, companies, businesses, and professionals, even retired ones, have been hit with notices. In a most perverse example of tax bullying, someone I know has got by three such notices reopening his assessment minutes before the midnight of June 30.

Stung by such patently unfair notices, many have rushed to high courts, arguing in writ petitions that such time-barred notices are illegal. More than a dozen assesses, say media reports, have got an interim stay against the time-barred notices by the courts across the country, including in Delhi, Mumbai, and Kolkata. But it is the hallmark of a bully to ignore logic and rationale. And hence, like the previous bullying governments, this one too is exploring legal options, including bringing in an Ordinance to legitimise the time-barred reassessment notices. It is also another example of using technology to harass rather than making life easier for taxpayers.

The tax department has argued that since it has relaxed/extended several tax compliance-related deadlines in the second wave of the pandemic, it is within its rights to unilaterally extend this rule as well. Assessees cannot pick and choose which extension of the deadline they want to oppose. If assessees have got a relaxation, the government machinery too should get one — so goes the perverse argument.
 

This is laughable. Extending departmental deadlines, which is well within the powers of the government, is completely different from extending the deadlines of a law that has been overwritten by a new law. As one court order has pointed out, “the impugned notification is contrary to the settled principles of statutory interpretation, namely, that any action is taken post the amendment of a procedural section would have to abide by the new procedures stipules in the amended Act. Further, it is of (the) view that by virtue of a notification, which is delegated legislation, the date for implementation of a statutory provision cannot be varied or changed”.

Over the years this government, obsessed with alliterative dazzle, has talked about transparent taxation and honouring the honest. It introduced a tax charter, which commits the department to “provide a fair & just system”. But whether in taxtortion of domestic taxpayers or of international cases (Cairn Energy, Antrix-Devas, and Vodafone), the tax department has consistently acted arbitrarily and unfairly. The maddening new income tax portal foisted on people with characteristic fanfare has invited Twitter comments like these: “Filed returns disappear. More than 8 lac grievances registered in less than 2 months. Only God can save us professionals and the tax payers.” What about the much-celebrated faceless assessments? A tax consultant tells me that while tax scrutiny has gone down, the faceless assessments, being algorithm-driven, reject many tax computations. And hence, appeals have shot up. “I have filed more appeals in the last two years than in the past seven,” says Nikhil Vadia, a Mumbai-based tax consultant.

In October 2018, Prime Minister Narendra Modi, a master of memes, had said: “Paying tax is prakriti (nature), not paying tax is vikriti (deformity). But paying tax plus doing more is sanskriti (culture).” That’s a ruler’s point of view. The subjects would like to rephrase this as “(d)emanding tax is prakriti, reopening assessments illegally is vikriti. But reducing friction measurably between the tax department and taxpayers is sanskriti.”

The writer is the editor of www.moneylife.in

Twitter: @Moneylifers