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Three recent instructions by the Central Board of Direct Taxes to its tax officers have perturbed tax practitioners and their clients - tax payers. In essence, the department has offered incentives to Commissioners of Income Tax (Appeals) to decide cases against taxpayers. Or so claim the Chartered Accountant Associations of Mumbai, Ahmedabad, Surat, Karnataka and Lucknow that have written to the finance ministry against the CBDT diktat.
The Role Of CIT (Appeals)?
It’s the first authority before which taxpayers, aggrieved by an order of an assessing officer, can go. There are 60 commissions of appeals in Mumbai alone.
The commissioner of appeals can confirm, reduce, enhance or annul the assessment, as per the explanation on the tax department’s website. CBDT Chairman Sushil Chandra reiterated this view to BloombergQuint.
"CIT (Appeals) has the got the same powers as the assessing officer. So, if he finds that something has been left out by the income-tax officer, which was required to be added, he has the power to add it. " - Sushil Chandra, Chairman, CBDT
Tax practitioners disagree with this view.
The Supreme Court has considered this issue on various occasions and laid down that CIT (Appeals) has no power to look for new sources of income, Gautam Nayak, tax partner at CNK & Associates, said to BloombergQuint.
He can enhance the tax demand only on the issues which are subject matter of the assessing officer’s order, Nayak emphasised.
Nayak is also co-chairman of the Direct Taxes Committee of the Indian Merchants Chamber. The IMC has participated in the representation made by chartered accountants’ groups to the finance ministry.
#BCAS submitted a Representation to the Finance Secretary, Govt. of India, jointly with @IMC_India @CAAABD Chartered Accountants Association - Surat, @KSCAA_CA and Lucknow Chartered Accountants’ Society.— BCA Society (@bcasglobal) August 8, 2018
click ?https://t.co/TXWhjjqCaz to read the full Representation pic.twitter.com/ur2zRTXA1P
Points For Extracting More Tax
Tax practitioners, in their representation, have claimed that three recent CBDT instructions belie the government’s objective of providing a non-adversarial regime. These include:
- A letter dated March 7 by the CBDT Chairman to Principal Income Tax Commissioners. He observed that the work on prosecution complaints and disposal of compounding applications ‘is not up-to the mark’. The letter also directed the tax officers to expedite filing of prosecution complaints.
- An instruction dated March 8 that directed Principal Chief Commissioners and Chief Commissioners to regularly inspect the work of CIT (Appeals) and keep a watch on the quality and quantity of orders passed by them.
- CBDT’s Central Action Plan 2018-19 which has offered additional credits to CIT (Appeals) for passing a “quality” order that:
- Enhances the tax demand raised by the assessing officer, or
- Strengthens the stand of the assessing officer, or
- Levies penalty on income that was concealed by the taxpayer and has been added by him to the tax demand.
Additional credit of two units will be given to individual commissioners for every ‘quality’ order that passes any of these tests, as per the Action Plan. Every year, the CBDT lays down targets for revenue officers. This year each individual commissioner of appeals is expected to dispose of a minimum of 550 appeals, or achieve a minimum of 700 units or credits, as per the Action Plan.
Chandra said that the department’s instructions are being read incorrectly.
"This is totally misconceived, and this has been absolutely understood wrongly by the persons who are reading into these lines. CIT (Appeals) already has these powers. So, it is not that he is being incentivised to make investigations." - Sushil Chandra, Chairman, CBDT
Nayak disagreed. After the CBDT chairman’s March 7 letter, tax officers have initiated prosecution proceedings in a large number of cases just to meet their targets, he recounted to underscore the point.
"Notices have been issued for the smallest of TDS (tax deducted at source) defaults or additions to income or non-filing of return of income or non-payment of taxes on time. Intimation received in response to an RTI query shows that around 1 lakh notices have been issued to show action taken in response to such instruction by the CBDT. " - Chartered Accountants’ Representation To The Finance Ministry
Maulik Doshi, a tax partner at SKP Business Consulting concurred. CBDT’s Action plan has stated that additional points will be given to the commissioner of appeals for passing a quality order; so, this will prompt commissioners to enhance tax demands.
"This is definitely not in good spirit, especially in light of the government’s claim that the administration is taxpayer friendly. CIT(Appeals) is a quasi-judicial authority. Even if the CBDT had to come out with instructions, they could’ve done it in a balanced way. They could’ve said that if a genuine relief has been given to a taxpayer by CIT(Appeals), there will be points for that as well.” " - Maulik Doshi, Partner, SKP Business Consulting
Instead, what we have are absolutely wrong incentives, he added.
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