Today, I intend to discuss the most powerful and intrusive tool of Search & Seizure that the Income Tax Department possesses. In fact, in general public perception, the Income Tax Department is better known for its 'raids' on corporate houses or politicians, falling out of the 'good books' of the Government. Even if we leave aside the controversial 'use' of such powers by the government of the day, the purposive object of Search, Seizure and Surveys is to 'google' undisclosed income or assets and gather evidence which is otherwise not collectible by using other means. So, in other words, whether it is a Survey or a Search & Seizure, it is merely a tool to detect undeclared income or black money and is certainly not an end in itself. Such invasive powers contrary to the doctrine of privacy have been vested in the Department (and also upheld by various courts), is to achieve the larger goal of being an effective deterrent against tax evasion. In simple words, the power to search & seize is theoretically expected to act like a hanging sword which would in turn ensure voluntary compliance with the tax laws. So, it is very clear that it is not a direct tool for revenue augmentation.
With this background, a soul-searching attempt was recently made at the AnnualConference of the CCITs & DGITs to study the effectiveness of the tool of Survey, Search & Seizure and also to find out how judiciously such a tool has so far been used by the Investigation Wing of the Department. As per the records, the last fiscal of 2013-14 witnessed 5300 Surveys, highest in the past four fiscals, that detected unreported income of as colossal a figure as Rs 90390 Crore from a mere Rs 5894 Crore detected in 2010-11. Such a figure may be attributed to one particular Survey in Delhi which alone accounted for as much as Rs 71200 Crore. For search & seizure, the peak was seen in 2011-12 when as many 620 corporate groups were raided and more than Rs 15000 Crore was surrendered under Section 132(4). During the last fiscal, about 570 Groups were searched and Rs 10800 Cr of undisclosed income was detected.
In this backdrop let's take an eagle-like look at some of the findings of the introspective sessions of the revenue top brass:
++ A large number of searches are conducted in those cases where a search had earlier taken place.
TIOL Adds: This is an absolutely correct finding which goes to prove the growing ineffectiveness of the tool of Search & Seizure. When the objective is to be efficient deterrence to tax evasion, the glaring fact is that the earlier search operations had not deterred even the searched persons and they continued to entertain themselves by indulging in tax evasion. Therefore its impact on other taxpayers can be easily guesstimated. In too many cases, it is reliably learnt, the Department was forced to conduct raids at higher frequency. If that is the case, it certainly amounts to bad news for the fiscal policy makers who are pitted against hardened tax evaders entertaining no fear at all against tax evasion charges. But the larger question is - Do such statistics indicate that the Department has been conducting only routine raids to generate dumb statistics? Or, there are too many flaws in the investigation and filing of appraisal reports post-search?
Let's move to other findings to find solutions to such questions.
++ The final realisation of taxes in search cases did not constitute substantial portion of the overall tax mop-up, and therefore, the emphasis on voluntary admission of undisclosed income was misplaced .
TIOL Adds: This is indeed yet another legitimate observation coming out of the process of'manthan' from inside! Although the CBDT does not maintain a separate head to keep track of revenue realised under this HEAD but knowledgeable sources indicate that it may not be even ONE PER CENT of the total revenue collected. If that is so, all the tall claims made at the time of carrying out search and seizure operations and the consequential surrender of income are at best hollow. There may be thousands of raids and surrender of undisclosed income in thousands of crores but only a paltry sum finally gets translated into tangible addition to the Consolidated Fund of India. This also reveals the malady of excessive stress on admission of undisclosed income during searches. A series of flaws can be pointed out in the Investigation of evidence and filing of unrealistic appraisal reports. Such a malady also tells us the tale of retraction of undisclosed income surrendered at the time of search in a huge number of cases.
++ A large number of high-pitched assessments are done towards the end of time barring period without undertaking proper probe and without marshalling the evidence adequately.
TIOL Adds: This happens to be yet another honest admission of the disease ailing the system. In a number of cases, particularly transfer pricing disputes, when the time barring inches closer, a state of panic prevails in the field formations and in most cases, the officers' end up making high-pitched assessments. And when such demands are appealed against, they fall face down as they suffer acute dearth of 'legs' of evidence and materials on record. In case of petitions to higher judiciary, the High Courts do not spare them from serious indictment and there are also instances of costs being imposed (See a recent decision of Bombay High Court). Earlier the courts used to ignore the Board and the higher revenue officials but it can quite often be seen that some observations are made about them. For instance, in this latest decision, the HC observed: "Why higher officials do not have the courage to take bold decisions?"
++ Large number of assessments made under Ss 158BD & 153C of the Income TaxAct, 1961 were quashed for failure to record reasons.
TIOL Adds: Such a finding evidently indicates the sorry state of affairs in the Department where all the efforts made by a part of the Department are set off for the failure like not paying attention to record reasons. When it comes to the levy of penalty , the quality of work is often found to be woefully stinking and poor. In many cases when cases are transferred to Central Charge, such a decision has been quashed for either not giving an opportunity of being heard or not complying with the dictum of passing speaking orders.
There are many more reasons pointing towards the prevailing malady which calls for an immediate remedy in terms of a new approach. The focus must shift from targeting disclosure to producing deterrence value. Extra efforts and monitoring are required in penalty cases, followed by launching of prosecution. To suggest a roadmap, the CBDT has set up two Committees headed by DGITs but what is badly required is what the Bombay High Court has rightly suggested - Top Revenue officers need to muster the required courage for bold decisions and timely action in case of dereliction of duty. This can be seen as half of the solution and the other half can be the recommendations from such committees. Let's hope the CBDT pans its attention to the eroding value of Search & Seizure tool which is globally seen as the most effective tool to sustain the fight against tax cheats.
By Shailendra Kumar
CAclubindia
