Since demonetisation, the Modi government seems to have made up its mind that the stick works better than the carrot when it comes to ensuring tax compliance. A case in point is the many amendments to the Income Tax Act in the Budget, which enhance the discretionary powers of tax officers, even while diminishing their accountability to the public.
The most contentious of these is an addition to sections 132 and 132A of the IT Act which govern search and seizure operations. These sections allow tax authorities, based on information, to authorise the search and seizure of an assessee’s assets provided they have reasons for “suspecting” and “believing” that a case of evasion is at hand. Judicial rulings have held that the reasons to “suspect” and “believe” must be recorded and disclosed on demand to taxpayers and the appellate authority. But the Budget inserts a new explanation exempting tax officials from disclosing the reasons to any person, authority or even appellate tribunal, given the “confidentiality and sensitivity” involved. The CBDT chairman has justified this on the count that the reasons for raids will still be disclosed to the courts. But the fact remains that this change significantly reduces the accountability of tax officials conducting raids at their first point of contact with the public. That this particular amendment takes retrospective effect from 1962 makes it even more suspect as taxmen can now take shelter under it for all their past actions. Yet another new clause allows investigating tax officers to “provisionally” attach any property belonging to an assessee during a search, and hold on to it for six months without waiting for a go-ahead from the assessing officer. The reasoning offered is that prompt seizures will prevent evaders from disposing of their assets. This may be true, but it presumes that all tax raids are conducted on the guilty. This need not be true always and can result in undue impediments to honest businessmen. Income tax officers have also been allowed to re-open the books of an assessee going back 10 years as against the present six years, on suspicion of undisclosed assets worth over ?50 lakh.
These changes would not be cause for alarm if the tax department was incorruptible and its search and seizure operations were conducted only on concrete evidence. But the tax department’s patchy record in winning disputes and recovering dues suggests otherwise. So, having brought in these provisions, the Centre must now ensure that these sweeping powers are tempered with more judicious use of search and seizure operations. As the Tax Administration Reforms Commission has suggested, non-invasive methods such as surveys of business clusters and mining of industrial and other public databases should first be attempted to identify non-filers of returns. Tax raids should be authorised only in the rarest of cases where evidence of evasion is clear.