Needed, accountability for adventurous tax demands
March, 17th 2007
The root cause for all the `demand' woes is the fact that the assessing officer who takes an aggressive approach in formulating the assessment, which is subsequently reversed by a higher appellate authority, is not held accountable for his action.
With March-end only weeks away, corporates have not only a fisc to wrap up but also a risk to face: the challenge of huge income-tax demands raised by the assessing authorities. "This has got further complicated by the fact that the appellate authorities have not been able to dispose of the earlier years' appeals within the timeframe due to clear paucity of senior people in the Revenue," says Mr K. R. Girish, Partner, Tax & Regulatory Services, BSR & Co, Bangalore. Here are his answers to a few questions from Business Line, on the tearful tale of tall demands.
Isn't this a regular phenomenon?
Though regular, the situation was aggravated after the Finance Act 2006 truncated the time limit for completion of assessment by three months, thereby giving more than sufficient time for the Assessing Officers (AOs) to collect the demand raised before March.
Another factor accentuating the agony of assessees is the transfer pricing assessment done last year based on an aggressive approach, especially on the IT/ITeS (information technology/IT-enabled service) sectors.
How is the taxman addressing the taxpayers' woes?
The stated position of senior revenue officials is that there would be no guidelines issued for stay of demand, but the assessees would have to approach the AOs based on individual merits of each case and it would be the prerogative of the AOs, with concurrence of Additional Commissioner, to consider the stay.
In practice, however, what has been seen is a clear direction to pay off 50 per cent of the demand to get the stay granted for the balance till the disposal of the first appeal.
Also, the reality is that where there is a refund for the earlier years, the same is withheld mechanically through the invocation of powers under Section 245 of the Income-Tax Act.
Has the recent Budget made any difference to the situation?
The Finance Bill, 2007 has proposed an amendment to the powers of stay in demand by the tax tribunal.
Assessees are, therefore, left with no option but to adhere to the demand of the AOs, else there is a lurking fear that `garnishee proceedings' would be initiated under Section 226(3) of the Act.
Can we zero in on the problem at hand?
The root cause for all the `demand' woes is the fact that the AO who takes an aggressive approach in formulating the assessment, which is subsequently reversed by a higher appellate authority, is not held accountable for his action.
Any solution that you'd suggest?
There can be two approaches to the problem. One, the CBDT can come out with a direction that, on issues where there is a clear judicial precedent, the Revenue would completely stay the demand until a higher appellate forum decides in favour of the Revenue.
And two, to ensure equitableness, a direction should be given to the tax administration that if a demand is raised and same has not held to be sustainable, the Revenue would make good the litigation costs incurred by the assessee in refuting the demand.
Is there light at the end of the tunnel?
The Finance Minister has said that a new direct tax code is going to be tabled in Parliament shortly, and it is hoped that there would be a clear direction for revamp of the tax administration and collection of demand from the existing approach, which is far from the established principles of fairness and equity.