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India Inc sees tax department's changing face: 2009
December, 30th 2009

2009 was also a year when the taxman evolved. He went from a mere tax collector to a vigilant body cracking down on corporate misdemeanor. And that was just for starters. CNBC-TV18s Ashwin Mohan reports on the changing face of the tax department.

2009 has turned out to be a landmark year for the income tax (IT) department. Not only did it grow teeth, but it even took a few nips. Search and seizure operations became common procedures and the department conducted them across multiple sectors.

More than 18 companiesbe it in real estate, infrastructure, textiles, shipping or manufacturingfaced allegations of tax violations.

This included some high-profile cases like the Rs 350 crore income allegedly concealed by HDIL, or the Rs 125 crore of allegedly unaccounted income in the case of ABG Shipyard.

Government sources say that in the July-September period alone, corporates disclosed concealed income worth Rs 940 crore during these raidsgigher than 2008's total alleged disclosure of Rs 840 crore.

This step up did not really take many by surprise. What did was the IT department's vociferous revolt against the government's new direct tax code. The Central Board of Direct Taxes (CBDT) claimed it was not consulted regarding the code, and conveyed its displeasure.

CBDT officials claimed that organisational tinkering proposed in the code, including making another department responsible for notifications and circulars, dilutes the CBDT's policy-making functions.

These objections played a part in making the government postpone introducing the code in the Parliament.

Finance Minister Pranab Mukherjee said, We will give adequate time to examine each valid suggestions coming from the stakeholders, because we dont want to commit a mistake in our anxiety to get it done.

Raids apart, the taxman also had a field day establishing his dominance over corporate deals, especially cross-border mergers and acquisitions (M&As). The IT department shot off a 535-page show cause notice to Vodafone over the USD 11.2 billion Hutch-Vodafone deal. While Vodafone is likely to respond only by January, 2010, the notice throws a new spin to the debate.

Dinesh Kanabar, Tax Leader, PwC, said, Its really an issue as to whether or not the tax authorities in India have a right to examine the taxability of the transaction which gave rise to gains in the hands of Hutchinson and the issue as to whether or not Vodafone ought to have with held taxes on the payment made to hutch.

These activities do not mean the department has relaxed on the collections front. However, while collections have not been downright disappointing, they have been below expectations.

Despite impressive advanced tax payments by the banking sector over the last few quarters, sources say the department has collected just 50% of the annual target of Rs 4 lakh crore and this will make early 2010 a challenging period for the taxman.

So what does the IT department fall back on, if it is not successful in meeting, or exceeding the annual direct tax target? Government sources indicate that a host of coordinated survey and search operations are on the cards in the fourth quarter to boost overall revenue collections. What that means is that the investigative wing will continue to keep a hawk's eye on India Inc.

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