Taxmen use rare law to collect dues directly from bank accounts of evaders
April, 05th 2019
Revenue officials, chasing huge tax collection deficit, are moving into top gear to maximise collections by year end even if that means deducting money directly from your bank account to fill a gap of thousands of crores.
Combined direct tax and indirect tax collections of the government may fall short by around Rs 60,000 crore this year. Insiders point out that the collection pressure is more on the direct tax department, as the government wants to have a “benevolent approach” with Goods and Services collections as most small and medium companies are facing teething troubles.
The taxman is evoking a special provision in the law that allows it to directly collect dues from banks and debtors of taxpayers. Till now, the provision was sparingly used and primarily on wilful tax evaders, people in the know said. In last one month, several letters and notices have been issued to banks and debtors with a hope of collecting tax dues.
Tax officials are using a two pronged strategy — freezing and directly deducting money from bank accounts and collecting money from the taxpayer’s debtors.
In the last one month, several letters have been written to banks and debtors, four people in the know said. Letters have also been written to banks where individuals suspected of evading tax, hold bank accounts. In most cases, the banks will have to deduct the money from the holder’s account and pay directly to the income tax department’s bank account, sources said.
Letters have also been written to debtors of companies and they have been asked to directly deposit the money in taxman's bank account rather than paying dues to the companies.
“While there are provisions in the income tax framework to attach the bank account and ask the banks to directly pay the money to the tax department, this was rarely used. These provisions are now being enforced in cases where tax demand has been raised and the taxpayer has either not appealed against it or has not deposited the 20% amount required to be deposited if he wants to challenge tax department's levy in appeals," said Amit Maheshwari, partner, Ashok Maheshwary and Associates LLP.
People in the know point out that in several cases, the dispute with the tax department is ongoing, but such letters have been issued by the tax department to banks and notices issued to companies and individuals.
However, this is the first time that letters have been sent to debtors and that has resulted in several companies facing risk to reputation.
“Garnishee proceedings initiated affects the reputation and business of the assessee. This is a provision which has to be used sparingly but is now used at the first instance by the assessing officer even in cases where a stay application is pending with various appellate authorities,” said Jeenendra Bhandari, partner, MGB, a chartered accountancy firm.
Garnishee proceedings mainly refer to a situation where income tax officer gets a right to attach or collect money from anyone who owes money to the taxpayer. This means money can be collected from banks where the taxpayer has an account or a debtor who is set to pay a company for materials or services.
“Please note that if you discharge any liability to the assesse after the receipt of this notice you will personally be liable to me as assessing officer/ tax recovery officer to the extent of the liability discharged, or to the extent of the liability of the of the assessee for tax/penalty /interest/ fine … whichever is less,” a notice issued to one of the debtors of the companies read. ET has viewed such notices and letters.
Notices of garnishee proceedings have been issued under section 226 (3) of the income tax act. The section empowers the tax officer to direct any person or company, that owes money to the defaulting taxpayer, to pay the amount directly to the tax department.
Tax experts said that in several cases, bank accounts have been attached even for when small amount is involved.
“In cases of unpaid tax demand, notices are issued to the banks for attaching bank account and asking them to pay the money from the bank account to the tax department. At times, demand is merely on paper arising on account of mismatch in credit of TDS (tax deducted at source) in the form 26AS, non-granting of appeal effect or non-initiation of manual rectification by the local tax officer for the incorrect demand raised," said Paras Savla, partner, KPB & Associates, a tax advisory.
This would be the second attempt by the direct tax department to propel the income tax collections. Several companies had complained that the income tax department had started issuing prosecution notices to taxpayers. Prosecution notices means a taxpayer can be arrested if dues are not paid. The Central Board of Direct Taxes (CBDT), however, had maintained that there was no harassment.
Email queries sent to CBDT did not elicit any response.
Recently several chartered accountant associations across India had come together and complained to the government about the revenue department.
ET had on March 30th reported that several chartered accountants across the country had requested the Prime Minister’s office and the Finance Ministry to rein in tax officials who have been directed to take “all possible actions” to recover tax amid a shortfall in revenue collection.
This kind of instruction causes a great deal of concern in the minds of tax payers as it is bound to create unrealistic pressure on tax officers, particularly days before the end of the financial year, a statement issued by CA associations read.