Scrutiny assessment ever green tool of harassment by tax authorities in spite of instructions of CBDT

[CA DEV KUMAR KOTHARI]

Scrutiny assessment are source of harassment:

Ground reality of working of income-tax department is that scrutiny assessment proceedings are big source of harassment. There seems hardly any change in attitude of most of Assessing Officers. This is evident from fact that major demands raised in scrutiny assessments get vacated in first and second appeal. There seems not much change in this regard during last fifty years.

No change even during NAMO government:

Even during present NAMO government, which promises ease of doing business, we find harassment continuing by making high pitched assessments, and pressing for collection of demand even when first appeal is pending and relief is likely to be allowed in view of settled legal position and favourable precedence having binding nature.

Un-necessary requisitions and calling of information:

Tendency of calling for information which are already available to the AO on a click of mouse still continues and the AO asks assessee to furnish printed copy of return- ITR filed by assessee online, details of business, directors, partners, computation etc. which are already found in the ROI and other documents submitted by assessee. In requisitions , many documents and explanations are required which are not at all required, not applicable and cannot be asked in terms of instructions issued by CBDT.

Tendency of unsettling settled legal position continue:

Tendency of not following binding precedence has not changed amongst many of tax officers. Many has tendency of unsettling settled things just by mentioning the revenue has not accepted appellate order or facts are different.

We find that even many amendments have been inserted just to unsettle settled legal position, even ignoring or not caring about legality of such new provisions. For example, during NAMO government and  Shri Arun Jaitley as finance minister, a deeming provision has been made to deem subsidy, grant –in- aid, assistance etc. as income though such receipts are generally capital receipts, as per settled legal position. A capital receipt cannot be taxed as per the constitution of India. Still we find that learned Shri Arun Jaitely has made a deeming provision to treat subsidies etc. as income. Therefore, we find that even at ministerial level tendency of unsettling settled position still continue, though retrospective effect has been minimised.

It seems that concerned ministers also do not give proper regard to the provisions of the constitution of India, though the government is emphasising that the Constitution of India is the basic rule and document.

Srutiny selection under CASS:

From time to time the  CBDT have issued Circulars to the effect that in case of cases selected by CASS based on certain information or certain parameters the scope of enquiry must be restricted and variation in income must also be restricted in respect of specific items for which selection of case has been made for scrutiny. In case of unlimited scrutiny cases, or in cases where AO consider that case require deep inquiry to unearth tax evasion exceeding certain limits, then with approval of specified senior authorities more detailed enquiry can be made.

Instructions are blatantly disobeyed  by many AO:

In ground reality , however, we find that instructions of CBDT regarding scope and procedure for limited, specific issue based scrutiny and   in depth scrutiny, are disobeyed by tax authorities (AO) and details enquiry are made, even in cases of  selection for specified purposes.

Additions are made in complete disregard of facts and law:

We also find that in scrutiny assessment additions and disallowances are made in complete disregard of facts of case, law, binding precedence etc., just for sake of making high pitched assessment order, raising high demand and pressing assessee to pay such demands. All these are source of harassment of assessee.  

Ad-hock, estimated additions and disallowances still continue:

We find that Assessing Officers are still making ad-hock, estimated additions and disallowances without any material but just on guess, conjecture, and presumption and prejudice. This is not proper. On small additions and disallowances, many assessee do not go in for appeal due to high cost of litigation and to avoid  loss of time which will be required if appeal is properly pursued, which is not possible for small sums.

Re-assessments:

Cases of issuing reassessment notices and opening assessments, have also been found for small sums when original assessment was made even under detailed scrutiny or as per instructions of CBDT. We find many notices for reassessment with likely tax effect of petty sums (not exceeding Rs. One lakh) such small cases of reassessment, revision and rectifications must be avoided by tax department.  

Earlier articles:

Readers can search and find earlier articles on this subject, in view of then prevailing circulars in some of earlier years.  In those articles detailed discussion about nature of variations made and advisable course of action by assessee have been discussed. Recent circulars are on similar lines, therefore suggestions placed in earlier articles are useful, with some variations in view of facts.

The recent circulars – whether AO will obey instructions?  a big uncertainty:

Recently Board have issue new circulars, in which earlier circular has also been referred to and adopted in some aspects. Considering past experience author is extremely doubtful about Assessing Officers following such instruction in right earnest, scope and spirit.

Recently Board has issued Instruction No. 19 and 20/2015. The earlier circular : Instruction No. 7/2014 dated 26.09.2014 has also been referred to therein.

Discussions to this article

[S S KONAR]

Provision should be made to penalise AOs for cases where a significant portion of the AO's order were either rejected or modified by the higher authority against appeal filed by the Assesses.

[NERELLA RANGA]

Yes sir. U r correct. Still the attitude of most of AOs is not changed and adamant procedures are continued. It is to be taken up in a serious way. Otherwise, genuine assesses will turn into in-genuine assesses.

[Debtosh Dey]

Good article indeed. True enough, there is utter disregard to substantive law, Court judgments and circumstantial facts. These apart, Income-Tax Act itself contains numerous loopholes. These are never healthy signs for corruption-free administration.

Debtosh Dey, M.Sc (Engg), FIE, C. Engg (I), FCMA, FCS, LL.B.