HIGH-PITCHED ASSESSMENT AND DISPERATE RECOVERY OF DISPUTED TAX

[C.A. DEV KUMAR KOTHARI]

Scrutiny assessments for Assessment Year 2008-09:

Scrutiny assessments for the A.Y. 2008-09 had a general limitation to be completed by 31.12.2010. As usual a large number of such assessments were completed during November and December 2010. Another usual feature is that in large number of cases high-pitched scrutiny assessments were made and huge demands were raised.

High Pitched assessments:

As usual in case of scrutiny assessments this year also we find many cases in category of high pitched assessments. These are made by making:

Unjustifiable and illegal additions and disallowances.

Making additions and disallowances contrary to decisions of appellate authorities and courts.

In many cases additions and disallowances have been made contrary to even judgments of the High Court having jurisdiction and also judgments of the Supreme Court directly on the point or on principles.

Making additions and disallowances contrary to actual facts and on presumptions.

As usual, in many cases additions and disallowances were made just because a scrutiny has taken place and the AO is psychologically not prepared to pass a clean assessment order without making any addition or disallowance.

Thinking of AO is against the policies of the government:

The policies of the  government are to respect the honesty of the tax payer and rely on the assessee. Accordingly a large number of returns are accepted as per return and self assessment made by the assessee. However, unfortunately when a case is selected for scrutiny either in original assessment or in a reassessment, the thinking of the AO is usually against the policy of government. The general thinking of the AO is that the assessee is  a tax evader or a chor and accordingly he suspect transactions of the assessee. As a result very severe remarks are made by the AO in assessment orders suspecting rather saying that the assessee is a tax evader. Sentences on the following lines can be seen in a number of assessment orders:

 The transaction is bogus,

 The transaction is a make believe show to book loss,

 The transaction is designed to evade taxes,

 The loss suffered is not genuine and is a means of tax planning to avoid legitimate dues of the revenue.   

The payment made is not genuine and is a tax avoidance planning, and many more such allegations are made by the Assessing Officer just with a prejudiced set of mind.

Cases have been seen in which even for a small payment of expenditure  or capital  receipt or receipt being non taxable and the amount being  below Rs. 25000/- such remarks are made by the  AO and additions or disallowances were made just for sake of making addition or disallowance and raising demand.

The officers have fear hence avoid making clean assessments:

Except few bold officers, it is generally felt that most of the officers are having fear in making assessments as per law and without any addition or disallowances. The fear is that if they make a clean assessment without any addition or disallowances they will be doubted and there will be presumption that the officer has received some advantage from the assessee. This is not proper. The officers should not have such fears.

Large scale deletion in first appeal itself:

A major part of additions and disallowances are deleted in the first appeal itself. We have cases where full relief is allowed by CIT(A). In some cases, even CIT(A) has fears and avoid allowing full relief hence some additions or disallowances are left only to confirm additions or disallowance made in  assessment orders to some extent. Records shows that more than  80%  of demands get vacated just after disposal of first appeal. This is evidence that additions of disallowances are made contrary to facts and law.  

Stay must be granted by AO:

In case of high pitched assessments and particularly when addition or disallowances are made contrary to judgments of Tribunal or High Court, the demand must be stayed by AO himself at least till disposal of first appeal.  However, this year it was noticed that even in such cases the Officers had fear while passing stay orders and they adopted pressurizing tactics to collect substantial amount even  against seriously disputed tax dues where, as per binding judgments relief is likely to be allowed..

Hard pressed recovery:

It seems that the Assessing Officers were under undue and excessive pressure from higher authorities to recover disputed dues in any manner. And it seems that the officers have adopted all possible means. Even in cases where demands were contrary to facts and also binding judgments, assessee were pressed hard to pay a major part of demand.

Summary disposal of stay petitions:

Cases have come to notice in which the Assessing Officers have disposed off stay petitions without considering merits of appeal filed by assessee before the CIT(A). Pressures have been exerted to recover disputed dues. Even the CIT(A) and CIT have not considered stay petitions filed before them in a judicious manner after due consideration of merits in appeal.

Quick attachment of bank accounts and sundry debtors- a way to close business of assessee:

Very prompt actions have been taken by attaching bank accounts and sundry debtors to exert pressure for recovery. To make the pressure harder bank accounts at locations having manufacturing factories were attached. This is a threat by action that unless you pay disputed dues the AO will force closure of business. It is common for many officers to threat that assessee that unless he pay disputed tax the AO the will cause closure of business of assessee.  Attaching bank accounts of factories seems to be an effort to close down business of assessee or practically give such threat and collect money.

Attachments even without passing order on stay petitions:

In some cases attachment orders were issued to banks and debtors even when the stay petition was pending before the AO himself. The AO had not allowed any opportunity of hearing and attached bank accounts.

Surprisingly  in one   case which came to notice of the author in which the AO fixed date of hearing on say petition say 21.03.11 however, even before that date bank accounts of factories of assessee  were attached and notices were issued to banks  ignoring that  not only stay petition was pending but was also  fixed for  hearing.  On the date of hearing the assessee explained that the demand is contrary to judgment of jurisdictional High Court, still any stay was not granted and collection was made through passing attachment orders even prior to such hearing.

 In some cases bank accounts and sundry debtors were attached even when stay petition was pending before the CIT(A) and the CIT.

Attachment- forced recovery and withdrawal of attachment:

There have been cases where attachment orders were passed as a coercive measure, when tax payer approached, attachments were withdrawn after obtaining payment against disputed dues.  It is likely that a major part of tax so collected will again be refundable when appeals are decided.  Therefore, collection of such tax in such manner can only be a temporary collection knowingly that it will have to be refunded once appeal is decided. Is every thing okay?

It appears that everything about financials of the government is not perfect and as projected. There may be cases of financial window dressing even in government. The government is making claims of clearing refunds expeditiously, however facts remain that many refunds are not sent through ECS or by cheques. There is large amount of outstanding refunds. Due to higher refunds, the target of net collection may not be achieved as per a press report of 05.04.2011. The report reads as follows:

05/04/2011

Govt may miss annual tax collection target due to high refunds

The government may miss its annual tax collection target for 2010-11 because of an all-time high outgo of income tax refunds. The income tax department has made a record tax refund of Rs. 72,000 crore till March 31, following instructions from the Central Board of Direct Taxes to clear all the refunds before the close of the financial year. The department had paid Rs. 58,000 crore in tax refunds in the previous fiscal. Officials are, however, still hopeful of meeting the target. "We have touched budget estimates for direct taxes and we expect some more tax on account of tax deducted at source, as it takes some time to process," a government official said. The government had estimated direct tax collection of Rs. 430,000 crore in the 2010-11 budget. This was later revised upwards to Rs. 446,000 crore. "We have achieved the budget estimate and we are hopeful of meeting the revised estimates also," another government official said.

Source : http://economictimes.indiatimes.com/news/economy/indicators/govt-may-miss-annual-tax-collection-target-due-to-high-refunds/articleshow/7869452.cms

On reading of the above report we can analyze as follows:

Revised direct tax collection target is Rs. 446 K crore.

Refunds paid is  Rs. 72K crores.

The net collection is thus Rs. 374 K crores.

Refunds of 72K crores as percentage of net collection is 19.25%.

It is pertinent that usually refunds are allowed mainly against tax deducted at source (TDS). This is for the reason that assessee pay advance tax and self assessment tax after considering the income and tax deducted at source. TDS is done by payer of income usually on prescribed rates irrespective of whether the recipient has income or has suffered loss. In many cases assessee do not even apply for lower TDS to avoid unnecessary harassment and enquiries.

This shows that excessive tax is collected by way of TDS and coercive measures and that become refundable in due course.

Collection of tax by application of coercive measures even when first appeal is pending and even when there is merit in case of assessee is nothing but a case of exercising power in an improper manner and that can only be described as HARRASSMENT.