Beware, the new taxman cometh

New Delhi: Appropriation of power is always dangerous for it frees up one’s ugly side. For instance, it turns taxmen into alpha males, bristling with faux energy, resulting in a hapless taxpayer turning into a traveler — someone who has to traverse various stages of grief, quickly. One can never dummy proof or idiot proof events and people. But give the taxman more power and you have a recipe for disaster. With income declaration schemes following one after another, and demonetisation in between, the taxman has been unleashed to bring you to heel.

Arbitrariness, adhocism, tax terrorism, Inspector Raj... call it what you will and all those who have faced the above will vouch for what I am saying. And mind you, this includes genuine taxpayers as well. The spectre of the cosh is a real and present danger.

On Thursday, the Lok Sabha passed the Finance Bill with three absolutely draconian provisions which actually empower an already empowered taxman some more. Enforcement agencies are constantly seeking more power, they want to get under your skin, into your head... to brutalise your psyche.

The three new (very) scary provisions

• Tax authorities can provisionally attach any property of a person being raided, for utterly vague reasons
• Tax authorities can enter any place, where a charitable activity is taking place, to survey it and get any person working there to provide them with any information they feel like
• Tax authorities can now open cases into assessments from 10 years ago based on just the evidence found during a search

With the passage of the Bill, the new law allows the taxman to provisionally attach any property belonging to the assessee after getting approval from senior authorities. Not only have sweeping powers to conduct searches and surveys been given, but junior officers can conduct an inquiry in a case where no proceeding is pending, without getting sanction from a higher authority. What is perhaps most damning is that the Budget has also proposed that the Department of Income Tax need not reveal the “reason to believe” to initiate a search to any person or any authority or the Appellate Tribunal. What is probably even more draconian is that this change will be retrospective from April 1, 1962. Tax authorities have the power to survey and enter the premises of charitable organisations, something that’s in line with the government’s thinking on cracking down on non-governmental organisations. Tax expert Dinesh Kanabar will be quick to tell you that, “roving inquiry should be avoided and the power to attach assets should not be used to coerce people into making declarations”. One also heard that a joyous Central Board of Direct Taxes is now planning a special unit to take down benami property and transaction offenders. So, more regulation compounded by more taxmen. Sounds ominous.

I decided to do a deep dive and consulted Law Reporter which explains the new provisions succinctly and lucidly. It is best that I quote extensively from the new provisions and what they mean for all of us:

Sub-section (1) and Sub-Section (1A) of Section 132 of the Income Tax Act, 1961 provides that where the authority stated therein, depending on the information in his custody, has ‘reason to suspect’ or ‘reason to believe’ of situations mentioned to in the the sub-sections, he might authorise the authority mentioned therein for carrying out search and seizure.

Likewise, sub-section (1) of Section 132A of the Income Tax, 1961 requires that the specified income-tax authority depending on the ‘reason to believe’ could authorise other authorities specified therein for the requisitioning from other authority or officer for delivering assets, books of account and documents of the assessee to the tax authorities so authorised.

Sensitivity and confidentiality are the vital elements for proceedings under Section 132 and Section 132A of the Income Tax Act, 1961. Though, some of the judicial pronouncements have caused uncertainty with regard to disclosure of ‘reason to suspect’ or ‘reason to believe’ recorded by the tax authorities for conducting a search under Section 132 of the Income Tax Act, 1961, or for making the requisition under Section 132A of the Income Tax Act, 1961.

Reasons for search & seizure to remain secret
Present Budget proposals of 2017 therefore have proposed for inserting an explanation to the sub-section (1) and to sub-section (1A) of section 132 of the Income Tax Act, 1961 and to the sub-section (1) of section 132A of the Income Tax Act, 1961 for declaring that the ‘reason to suspect’ or ‘reason to believe’, as the case may be, shouldn’t be disclosed to any authority or the Appellate Tribunal or any other person.

This is okay at one level for you can argue that for purposes of confidentiality one needs to maintain the highest levels of secrecy and maintain information under a classified status. But these are hardly state secrets or defence-related information which requires the utmost privateness. What it does is it unfetters you, gives the other the additional heft to play a bruising game of brinkmanship without so much as a by your leave. It leads to aggregation of power, for you don’t even need to run it by your superiors or the next person in the food chain.

Reason to suspect and reason to believe will in that case only lead to harassment and unnecessary mind-games. Blinded by an unrelenting aggrandisement of power, the taxman will then discard rationality for plain perversion.

Search, Seizure under I-T Act
The Income tax department conducts what are considered as some of the worst nightmares of many businessmen and corporate houses — survey, search and seizure operations.

Search and seizure operations, known as income tax raids, are matters of panic for the corporate houses as they may result in paying heavy tax, as well as penalties.

Surveys are not feared unlike that in case of search and seizure operations, but they often happen to be the first steps towards such operations. A lack of knowledge often results in panic. The negative impacts of search and seizure can be avoided, if the assessees have sound knowledge about various aspects relating to such operations.

More power to the taxman? Not a good idea
An operation under Section 133A of the Income Tax Act is called ‘Survey’. But the term ‘Survey’ has not been defined in the Act. However Section 133A of the Act deals with the power of survey.

The term ‘Survey’ refers to collection of information at the place of business or profession. Surveys are milder than search operations as they do not involve seizing cash or jewellery or any other asset. But it involves recording statements on oath, searching residential buildings etc. Surveys are contemporary nomenclature for old-fashioned raids, I give you Akshay Kumar in Special 26 and his escapades. For more, refer to I-T ‘Surveys’ and what they permit.

But here’s summing it up. The Aesop’s Fables of the Income Tax rulebook which when thrown at a harried assessee has him scurrying for cover. To his eternal dismay, this perilous existence is not wished on his enemies. Of course, it is imperative that India’s narrow tax base is enlarged. The Government’s best intentions in this regard should bear fruit. But the taxman is already armed and dangerous and to give him more  invasive powers will make him a Hydra-headed monster. To become oppressive and repressive is not the government’s grandiose plan to bring in more taxpayers into the fold — this particular change in the Finance Bill should be debated and challenged. Also, punitive powers are good to bring people to heel but an overdose always leads to a sense of insecurity which, in turn, leads to ingenious ways to beat the taxman. Don’t torment genuine taxpayers by putting the squeeze on them. Provisions like the ones discussed above lead to arbitrariness and the return of Inspector Raj. Avoid this, let the Opposition, for whatever it stands for, take up cudgels and ask for the government to relent. Mere suspicion can do absolute, incalculable damage.

I-T ‘Surveys’ and what they permit:

1 Entering a place of business during its working hours and in other places, only after sunrise and prior to sunset.

2 Entering any place which is not a business premises, if the cash, documents, books of accounts, etc. of an assessee are lying there.

3 Marking of identification on the books of accounts, to take copies of them and to impound books of accounts found during such survey upon recording reasons for doing so. But survey teams cannot seize assets. It should be noted that the records in the books of account as well as other documents discovered at the time of the survey operations, will stand as a fact unless proved otherwise.

4 Making an inventory relating to cash or other assets found, to record the statement of an individual, to gather information in connection with the amount of expenses incurred for personal functions or event such as a wedding ceremony, to discover and produce evidence etc..

5 A survey can trigger a search depending upon the nature of the information collected provided certain conditions of Section 132(1) of the Act are fulfilled.

6 Generally, a survey is concluded in a single day, but under certain circumstances, it can continue into the next day.

7 Recording the statement of a person available at the place of survey if it appears that such statement may be useful in any proceeding under the Act.

8 In a survey, like search and seizure, the tax officer cannot force the assessee for recording his or her statement regarding income.

9 Only an authority having jurisdiction over the assessee is entitled to conduct a survey.