The Vicious Circle of Setting up of Over-Ambitious Revenue Collection Targets – Revenue Authorities Over-Reaching Taxpayers- Withholding of Refunds!!
With a view to provide the much needed stimulus and push to the falling GDP growth rate and the currently prevailing slow-down in economy, the Hon'ble Finance Minister (FM) Smt. Nirmala Sitharaman, in a press conference on 23.8.2019, has announced a slew of tax reform measures including withdrawal of enhanced surcharge on capital gains of Foreign Portfolio Investors (FPIs) and Domestic Investors, non-applicability of provisions of section 56(2)(viib) of Income Tax Act, (popularly known as angel tax), on recognized Start-ups under DPIIT, setting up of a dedicated cell under the member of CBDT for addressing the problems of Start-ups, de-criminalization of CSR defaults, Issuance of all IT orders, notices, summons, letters etc. through a centralized system with a Document Identification Number (DIN), w.e.f. 1.10.2019 and compulsory disposal of all old and pending IT notices uptill 1.10.2019 and all fresh notices within three months of their issuance, provision of additional depreciation @ 15% on all business vehicles purchased uptill 31.3.2020, all pending GST refunds due to MSMEs to be paid within a month and all future GST refunds to be paid within 60 days from the date of application, among other banking and financial sector reforms.
All these tax reform and rationalization measures were being considered after a series of deliberations and discussions of the Finance Ministry with the representatives of all the stakeholders concerned and indeed this responsive and concerned approach and initiative of the Finance Ministry is commendable and deserves appreciation by all quarters.
However, on one particular front, a wonderful opportunity was missed…..an opportunity to do away with the natural and inherent tendency of setting over-ambitious and unrealistic revenue collection targets and to review, reconsider and rationalize the fixing of such targets, in line with the realistic assessment at ground-level.
For the FY 2019-20, the annual revenue collection targets from direct taxes have been fixed at Rs 13.35 lakh crores, and infact these are also downwardly revised targets from the earlier fixed targets of Rs. 13.78 lakh crores.
In the press conference, to a specific question concerning the issue of setting up of over-ambitious revenue targets, the FM categorically replied that based on the feedback from Tax Administration Officials, at the ground level, this target is easily achievable without the Tax Officials requiring to over-stretch themselves and without resorting to any harassment or overreaching to assessees.
A prose in the sacred "Sunderkand" reads as under:
Meaning thereby that, if the chief advisor, doctor or teacher, due to fear, or due to greed, does not give honest and realistic feedback and instead resort to flattery and flunkeyism, then the destruction and extinction of the empire, physical well-being and the mental well-being is imminent.
As a taxpayer, one would really wish this idealistic confident assertion of easy possibility of achieving the mammoth revenue collection targets in normal, ethical, cordial and taxpayer-friendly environment, without any over-reaching of taxpayers, harassment or high-handedness, to be true.
However, in real-life practical scenario in tax administration system, the assessing authorities, actually conducting day to day assessments at the ground level, are often found to be asserting and claiming about their otherwise genuine intentions of ensuring a taxpayer-friendly regime, but for the pressure of achieving over-ambitious and unrealistic revenue collection targets.
So, it really becomes a very crucial and essential question to ponder, as to what is the real picture or more specifically, what is the real and actual ground-level feedback?
The self-proclaimed ground-level feedback received by the Finance Ministry from the higher-ups in the tax-administration system about easy achievability of the revenue collection targets without there being the necessity of the tax officials over-stretching themselves in over-reaching the taxpayers? OR
the ground-level feedback received by the taxpayers from the assessing authorities actually conducting day to day assessments, about the tremendous pressures on their heads and minds, of achieving the unrealistic and over-ambitious revenue collection targets being fixed at the top-most level of CBDT and without involving them in the said determination?
This is indeed a very crucial and significant question which must be immediately considered and addressed by the Finance Ministry, the Regulatory Body CBDT and the concerned Revenue Authorities, because the real sufferer on account of the confusion and ambiguity concerning these two types of divergent and diametrically opposite ground-level feedbacks are the taxpayers themselves and no one else.
The apprehensions and concerns concerning the high-handed approach being awarded to the taxpayers by the assessing authorities at the ground level on account of pressures of achieving the unrealistic revenue collection targets or on considerations of fulfilment of their personal vested targets, are often downplayed and disregarded by the concerned members and higher-ups in the CBDT and the tax administration system stating the same to be exaggeration, and a figment of cynical imagination.
However, very recently, none other than the Hon'ble PM Sh. Narendra Modi and the Hon'ble FM Smt. Nirmala Sitharaman themselves have echoed with such concerns and apprehensions in admitting the over-reaching and high-handed approach of the tax authorities.
It is an unfortunate reality that the taxpayers in their day to day assessments, and other incidental tax matters are facing and battling out with numerous difficulties wherein their long pending fully lawful refunds are being withheld just for the sake of fulfilling the kitty of budgetary targets by the revenue officials, in order to improve their service records.
The high-pitched assessments are made to create and raise fictitious demands, completely ignoring the provisions of Law and well settled binding legal precedents, and then forcing the deposition of the stipulated minimum 20% tax demand by resorting to extreme co-ercive measures of seizing of bank accounts, threat of conducting special audits u/s 142A of the Act, threat of enforcing survey u/s 133 and search & seizure u/s 132 of the Act.
It will be worthwhile and desirable to bring to light some of the 'Real-Life Testimonials' to such high-handedness approach and unlawful and arbitrary 'refund delaying tactics' of the Revenue Officials aimed at collecting taxes by hook or crook, in order to achieve the mammoth and unrealistic revenue collection targets to score performance appraisal points in improving their service records and even for their personal vested interests.
Testimonial No. 1:
The assessee wins an appeal in ITAT against the substantial demand being raised in the assessment order on account of disallowance u/s 14A of the Income Tax Act, read with Rule 8D, on the ground that such disallowance cannot exceed the amount of the exempt dividend income, which happens to be very nominal in the case of the assessee as compared to the huge disallowance u/s 14A.
The assessee makes an application for granting the appeal effect to the jurisdictional assessing authority in the month of September. Even after regular and numerous follow-ups he is not granted his fully lawful refund and infact the concerned assessing authority expressly and openly conveys to him to wait for his refund till the first week of April of the subsequent financial year, on account of the pressure and consideration of achieving the specified revenue collection targets of that particular financial year in that particular assessment range.
Though out of reluctance but in order to remain in the good books of the assessing authority, the assessee waits for full six months till March and again approaches the assessing authority in the month of April of the subsequent month, in the hope of obtaining his long pending refund.
However, to his surprise and dismay, he is being handed over the Demand Adjustment notice u/s 245 of the Income Tax Act, stating that his refund of that particular year is proposed to be adjusted against his demand of the subsequent year.
To make the matter worst, the assessee finds out that the stated demand for the subsequent year has been created by the Central Processing Unit (CPC), Bangalore, on account of not giving the full credit of TDS to the assessee, which otherwise is fully reflecting in online Form 26AS.
The assessee is forced to file a Rectification Application u/s 154, to rectify this mistake apparent from the records before the assessing authority. The assessing authority claims about his helplessness and lack of jurisdiction in entertaining the said rectification application stating that the assessee needs to file an online rectification application to CPC.
The vulnerable assessee does that also. However, no corrective or remedial action is being taken either by the assessing authority or the CPC. The assessee's long pending refund is finally being adjusted against the fictitious and completely unlawful demand being created for the subsequent financial year and the assessee is forced to keep on battling out for obtaining his otherwise fully lawful refund, helplessly.
Testimonial No. 2:
A huge demand is being raised against the assessee in the assessment order on account of disallowance of operating revenue expenditure by considering the same as expenditure incurred prior to the commencement of business.
After depositing the full amount of demand under protest, the assessee wins his appeal in the High Court on the ground that the operating revenue expenditure incurred after the setting up of business but before the commencement of business are allowable revenue expenditure.
The assessee makes an application for granting the appeal effect to the jurisdictional assessing authority in the month of June. Even after the lapse of 5 months, after regular and numerous follow-ups, he is not granted his fully lawful refund and infact the concerned assessing authority expressly and openly conveys to him that for the purpose of betterment and ensuring seamless flow of refunds and taxpayer friendly compliance window, the old IT system known as 'OLTAS' has been replaced by the new system called the 'ITBA', but the challans of the demand taxes being paid by the assessee are not being reflected in the new ITBA system, and as such the assessing authority could not process his refund, and the assessee is left with no other option but to wait endlessly for his long pending fully lawful refund.
Testimonial No. 3:
A system generated huge demand is created against a duly registered charitable trust u/s 12AA of the Income Tax Act, in intimation u/s 143(1)(a) of the Act, on account of non-consideration and non-cognizance of the charitable status of the trust and denial of its otherwise fully lawful claim of deduction u/s 11 of the Act. The assessee trust files its online response of disagreement with the demand along with the supporting documents. Inspite of that demand still persists and the managing trustee of the trust is being issued a prosecution notice u/s 276B of the Act, for non-deposition of the said unlawful demand.
The list of such real-life testimonials evidencing the currently prevailing scenario in the tax administration circles is endless, wherein the revenue officials are fully obsessed with the idea of fulfilling their respective budgetary targets of revenue collection in order to improve their service records, or also for fulfilling their personal vested interests in some cases.
Concluding Remarks:
No doubt the fixing of ambitious targets in various functional domains like the sales targets, production targets, and the aggressive efforts being put in the accomplishment of such targets in the corporate sector is a universal and acceptable phenomenon, essential to augment the organizational growth, to serve as performance appraisal benchmarks and also to fix the accountability for non-fulfillment of the pre-determined targets.
However, replicating such practices of setting ambitious or rather over-ambitious targets of revenue collection by the Finance Ministry for the Income Tax Department is a completely undesirable and unjustified phenomenon and infact is the 'root cause' of the over-ambitious revenue authorities over-stretching themselves in over-reaching the taxpayers, resulting in taxpayers being made subject to the high-handedness, harassment and over-intrusive and co-ercive measures of tax collection.
Just like in any successful corporate enterprise, in Income Tax Department also, the targets of annual revenue collection should be fixed by involving all the stakeholders in the tax administration system especially including the assessing authorities conducting day to day assessments, at the very ground level, their respective range heads as well as the CITs and CCs, in addition to the higher ups in the CBDT.
Further, such targets of annual revenue collection should be fixed on gross basis without taking into account the grant of refunds of the taxpayers, as currently, all the assessing authorities, have the natural and inherent tendency of withholding the otherwise fully lawful refunds of the assessee just for the sake of achieving their budgetary revenue collection targets to improve their service records, and in this short-sighted and narrow approach, they are knowingly or unknowingly, severely damaging the revenue generation capacity of the taxpayers in the long run. Thus, delinking the grant of refunds of the taxpayers from the criteria of achieving a pre-determined target of revenue collection is the most important and fundamental consideration which should be adhered to by the policy makers in fixing the revenue collection targets.
Off-late, everyone is talking about the path-breaking and revolutionary initiative of faceless, jurisdiction-less, and randomized e-assessment mechanism, wherein the physical interface between the taxpayer and the assessing authority will be completely done away with, and instead of a particular assessing authority a common assessing unit will conduct all the assessments through centralised computer system.
No, doubt, such faceless and jurisdiction-less e-assessment mechanism can prove to be a very effective and efficient tool to curb the undesirable practices prevailing in the tax administration system.
However, if in such e-assessment mechanism also, the targets of revenue collection are continued to be fixed on over-ambitious and unrealistic basis, then instead of proving to be a taxpayer friendly initiative, it may turn out to be a trouble-maker for the taxpayers, wherein, the assessing units, burdened and obsessed with the pressure of achieving such over-ambitious revenue collection targets, and coupled with the practical considerations of human impossibility of reading out, understanding and taking due consideration and cognizance of all the cumbersome and voluminous submissions, replies, explanations and supporting records and documents, filed via the electronic mode, without involving any personal and verbal explanation, may end up making huge additions and disallowances, resulting in increased amount of litigations and confrontations at the higher appellate stages.
Thus, such noble and path-breaking initiative of e-assessments will also produce the desired and productive results only if the present tendency of setting up of over-ambitious and unrealistic annual revenue collection targets is done away with, and wholistic, pragmatic and realistic approach is being adopted by the concerned authorities to fix only practically viable and actually achievable targets of revenue collections, based on honest and true feedback of all the stakeholders, including the ones conducting assessments at the very ground level, without there being the necessity of the revenue authorities over-stretching themselves in over-reaching the taxpayers.
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