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High Court raps I-T Department for wrong tax demand
October, 17th 2016

Text messages congratulating taxpayers; polite letters; and, gentle persuasions are New Delhi's recent efforts to alter the taxman's image as a bully. But for tax officers chasing stiff targets, old habits die hard –- an attitude that has not gone down well with the court of law.

The Bombay High Court has pulled up the income tax (I-T) department after it found out that the department had slapped a notice on an individual even though the search and seizure carried out by the tax office revealed nothing.

With the department unwilling to change its stand and insisting on pursuing the notice, the court directed the department to pay Rs 20,000 to Gautam Sen who had filed a petition six years ago before the High Court, challenging the notice.

According to the confidential appraisal report — prepared by the department following the search and disclosed at direction of the court — no incriminating documents were found during course of search nor was it evident that Mr Sen was in any manner involved in the bank account with his name in the said Bank. “We note that this action on the part of the revenue to issue the impugned notice ignoring the appraisal report is highly deplorable. We live in a country governed by laws. The officers of the income tax department are obliged to proceed in accordance with the statutory provisions and not on their whim and fancy,” said the court.

“The officers,” according to the court, “hold power in trust and must ensure that no citizen is harassed by sending him notices, when on the basis on its own record, such notices are not sustainable. We trust that the income tax department would adopt a standard operating procedure which would provide for appropriate safeguards before issuing notices under Chapter XIVB of the Act. This alone would ensure that officers of the revenue act in terms of the mandate provided in the Act.”

The ruling is a clear message to tax officers that they should not overstep the limits of law, said senior chartered accountant Dilip Lakhani. “Rarely does the court direct the tax department to award the costs to the petitioner,” he said.

Also, in the affidavit-in-reply filed before the court by a senior tax official, there is no mention of any incriminating material found during the course of search linking the petitioner to any undisclosed income.

As per procedures, tax officers are required to file an appraisal report which spells out why the search was conducted, what was found, analysis info documents seized and course of action.

The court had asked the tax department to produce the record maintained by it including the appraisal report, consequent to search, before taking a decision to issue the impugned show cause notice.

ET View: Harassment must stop
The High Court's observation is right. An image make over alone will not do. There must be a change in the mindset of tax officers who often err on the side of revenue, leading to arbitrary tax demands. Searches and seizures too are blunt instruments of law enforcement. Instead, the department should use big data analytics, by either hiring such firms or using their techniques to mine information to track the source of funds, and not harass law abiding citizens

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