The mammoth task of sorting out black and white for IT department


New Delhi, December 10: PM Narendra Modi led government is looking forward to use sleazing tax blade on undisclosed income deposited in banks during 50-day deadline to exchange demonetized currency.

However, two major tax associations — Income Tax Employees Federation (ITEF) and Income Tax Gazetted Officers’ Association (ITGOA) who make 97 % of the IT department, are not amused by the burgeoning emergency on their department owing to high scale manpower and infrastructural shortage.

In a joint memorandum the income tax employees associations have written to PM and FM, GOI, about how they are feeling “demotivated due to shortage of manpower in lower cadres and huge stagnation in officers cadre right at this moment”.

The joint statement says: In the present circumstances, the objective of taxing the black money will be difficult to achieve without resolving the issues narrated in details in the press note enclosed.

“As the fight against the menace of black money requires a continuous and long‐term mechanism, the process of identification, examination, investigation and verification of transactions made consequent to demonetization shall entail large increase in workload for which adequate manpower and logistic support will be required.”

Here in, Wefornews have explored why the ITD is so miffed up with the Center’s foresight regarding unravelling the tax hoarders in such a short span with the help of the expert inputs.

Let us assume that only Rs. 12 lakh crore of the Rs 14.5 lakh crore comes back to the banks, while, the RBI governor has already accepted that Rs 11.85 has been pooled in the banking sector till date.

Now let’s deduct Rs 4 lakh crore as the amount that was already parked with banks as deposits before November 8, the money with ATMs, Money collected by government utilities, municipalities, railways, hospitals, petrol pumps, ITD itself, and so on, during November/ December from the total amount.

In the narrowest estimates, let’s say Rs 8 lakh crore would be required to be checked by the Income tax department.

There were about 117 crore saving bank accounts in the country in 2015 held by nearly 60 crore Indians. Some of them would have multiple bank accounts. Now we can safely assume that people would have submitted either Rs 50000, Rs 2,50, 000 or more than Rs 2.5 lakh in their accounts.

It would be safe to assume that only 5% of these 60 crore people, i.e, 3 crore persons would have made cash deposits exceeding Rs. 250,000/- , which would be deposit of Rs.7.5 lakh crore. Of these, let’s assume only 25 % of people would come under IT scrutiny. S0, total of 75 lakh cases would require the attention of IT department.

Here in, as data of depositors would be clean and collated and certified by banks, the main issue for investigation would be correctness of explanation for the source of deposit offered by the depositor.

Next in line for investigation would be cases coming out of searches and surveys. These should be few thousands and certainly not in lakhs! However, these would require deep and concerted investigations.

Coming to deposits made to the Jandhan Accounts, about 30 lakh Jan Dhan a/cs (JDA) have been opened between November and December 2016. Total deposits in JDA have increased from Rs. 45636 crore in October to Rs. 74321 crore in December i.e. by about Rs 30000 crore. IN JDA, the investigation is not merely of source of deposit, but also of ownership because the suspicion is that these are benami deposits; and then fastening the liability on the real owner.

The entire process of investigation by the income tax department would involve

(i) Collection of data from banks: for this a new rule has been framed mandating all banks to transmit data of deposits of Rs. 50000 and above online to ITD by 31st January 2017

(ii) Receipts of returns or Issue of notices for the same: this will happen only around July 2017

(iii) Issue of notices seeking explanations for the deposits

(iv) Conduct of hearing by the Assessing Officers (AOs)

(v) Passing of assessment orders accepting partly/fully or rejecting the explanation and raising of tax demand

(vi) Steps for recovery of tax demand

(vii) Penalty proceedings in appropriate cases

(viii) Prosecution in at least a small percentage of cases

Last C&AG report (No.3 of 2016) brings out that between 2009 and 2014 the number of Officers in ITD on assessment functions varied from 3600 to 4000. For 2016, let us assume the number of Assessing Officers to be around 5000.

The same report shows that the number of scrutiny assessments completed annually in the years between 2009 and 2014 varied between 3 lakh to 4.55 lakh. This works out to about 125 assessments per officer per year. Let us assume that the officers are persuaded / directed to more than double their output to say 300 assessments per officer per year and the entire assessment manpower is devoted to these cases only – which in practice is impossible.

The limitation law requires that assessments for Financial Year ending March 2017 should be completed by December 2019. Thus theoretically each officer will have about two years to complete the assessments pertaining to year ending March 2017. In other words each officer can dispose about 600 assessments.

For 5000 officers the total will work out to about 30, 00,000 assessments in two years.

Looking at the issue conversely for completing one crore assessment (75 lakh S/B a/c cases and 25 lakh JDA cases) in two years ITD will need to at least triple its assessment manpower. This is not easy, the recruitment process being what it is. One option to augment manpower could be to entrust assessment function to Inspectors also. But that may invite criticism of Inspector raj and still not solve the problem. Another option could be to amend the law so as to increase the limitation period from current 21 months to 60 months. But that would dilute the thrust of the drive.

Of course, this is a highly simplified version based on multiple assumptions. The actual scenario is going to be far more complex. Besides, there would be issues of tax disputes, tax arrears, possible allegations of high handedness and corruption, and much more.

The government would have to take a call sooner as the queues from Banks would soon be moving to the CAs and IT offices.

(With special inputs from Shahid khan, former CBDT member)

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