CA Dev Kumar Kothari
Acceptance of return is general approach of government:
It can be said that acceptance of returns filed by assessee is general approach of the GOI. This is evident from the fact that majority of returns are accepted as per self assessment and they get finality once an intimation is prepared and accordingly tax is demanded or refund is issued.
In case of scrutiny assessments also experience of author is that in most of cases ultimately income assessed after disposal of appeals is near about returned income. In case of small additions the assessee do not file appeal to let his assessment be final. In case of substantial additions and disallowances clients are advised to file appeal. Experience from empirical study shows that in many cases ultimately the assessed income is lower than the returned income or ultimately determined loss is higher than the loss as per return. This is because many of additional claims made for consideration of the AO, either in the computation of income or during hearing, are allowed in due course of appeal. If a scrutiny assessment was not made, than such claims would not be allowed. Therefore, in such cases, in fact, scrutiny results benefit for assessee but at cost of harassment due to high pitched assessments made and the need to prefer and contest appeals.
Complexity of law:
At any time there can be several possible views on any particular issue. Different officers and courts can have different rulings. It is settled principal that a view which is favorable to the assessee should be adopted in tax matters. We have noticed that in some situations, even after ruling from the Supreme Court, different views may be possible even in respect of the ruling and the ruling can be applied differently due to some differences in facts and circumstances. It is generally seen that assessing authorities many times do not follow even binding judgments by saying that facts are different, though the facts are similar. Many times binding precedence is not followed, just to keep matter alive and to avoid burden on revenue to keep track of subsequent ruling and burdening assessee to be attentive to protect his own interest.
Scrutiny assessment and subsequent proceedings:
In case of scrutiny assessment, the AO makes enquiry and gathers evidences. Based on his enquiry he passes assessment order against which assessee can prefer an appeal before CIT(A) or a revision petition u/s 264 before CIT to seek further relief which has been denied by the AO or against additions and disallowances .
Proceedings by tax authorities:
In case it is noticed that the assessment order suffers from some mistakes or it is erroneous or prejudicial to interest of revenue or that there was escapement of income, the revenue can take remedial actions by way of rectification, revision or reassessment proceedings. All these proceedings have their own limitations as to jurisdiction, procedures and limitation of time within which proceeding can be initiated and / or completed. However, so far author knows, there is not monetary limit for initiation of such proceedings. Experience shows that such proceedings were initiated even on matters having revenue impact of meager amount below Rs. fifty thousand.
Reasonable and possible views:
Where assessing officer has taken a reasonable and possible view on the matter, there should not be any rectification, revision or reassessment proceedings. Because in such case it cannot be said that the assessment order contains mistake apparent from record, or that the assessment order is erroneous and prejudicial to the interest of revenue or that there was escapement of income.
Ground reality is that audit objections are a major un-necessary source of litigation by revenue. It is experienced that Just to avoid exercises and explanations involved to clarify points raised by revenue audit party and also to avoid responsibility, the revenue authorities accept the audit objections and take some action by way of rectification, revision or reassessment, whichever is open or whichever is considered to be on comparatively better footing. From a sample study of cases it is noticed that most of such proceedings ultimately fail. On overall basis also the ratio of failure is likely to be in range of 80-85%. From reported judgments and also otherwise, we find that revision, rectification and reassessment proceedings initiated by revenue fails due to several reasons including lack of merit, lack of jurisdiction, and other limitations.
Small sums in context of revenue may be substantial for tax payer:
Small sums of tax impact of say up to Rs. five lakh in any case is negligible in the context of overall revenue of GOI from taxes. Therefore, GOI can avoid proceedings for such small cases. However, for a tax payer sum of Rs. five lakh can also be a big amount. Therefore, tax payer has to contest initiation of such proceedings. Experience shows that in case of even small tax impact cases of up to Rs. five lakh assessee has to contest the matter in appeals. When tax payer contest the matter, he has to incur costs and devote time. The revenue is also required to attend the litigation and in overall the proceedings are not fruitful for the revenue.
Monetary limits are desirable:
It has also been noticed that many times rectification, revision and reassessment proceedings are initiated even in small cases where revenue impact is not significant. In such cases usually litigation will take place for the reasons that the assessee faces sudden and unexpected tax liability, and burden of interest is also high. In most of such cases litigation up to second appeal before Tribunal can be expected. The impact of assessee may be significant, however, in overall context of revenue the gains to revenue is not very significant.
We find that in case of direct and indirect taxes limits for appeals by revenue are fixed and are revised from time to time. However, there seem no such limits for proceedings like proceedings for rectification, revision and reassessment etc.
It is desirable that monetary limit for tax impact should be fixed for taking actions by way of rectification, revision and reassessment proceedings. The following limits are suggested:
|In case of point involving repetitive impact in many years (say more than four years)Rs. one lakh per year.||In case of point involving repetitive impact in many years (say more than four years)Rs. two lakh per year.||In case of point involving repetitive impact in many years (say more than four years)Rs. three lakh per year.|
|In case of point not involving repetitive impact in many years (say less than four years)Rs. two lakh.||In case of point not involving repetitive impact in many years (say less than four years)Rs. four lakh.||In case of point not involving repetitive impact in many years (say less than four years)Rs. four lakh.|
There should be clear guidelines to ensure that un-necessary proceedings should not be initiated which has not much revenue effect but just involves litigation and this aspect is well known to the authority concerned.
Explanations can be asked from assessee in case of audit objections:
Many times it happens that there is change in officer in charge in post of the AO. The new officer is not very much aware about the facts and circumstances. It may take lot of time to study and reply properly to the audit party.
Therefore, in case of audit objections, it may be made mandatory for the AO to provide a copy of the audit objection to the concerned assessee and ask him to furnish his explanation and file relevant details and basis of claim etc. The reply to audit party can be prepared after consideration of the explanation by assessee on the audit objection.
It can be said that the overall policy is to rely on assessment made by the assessee himself. For this reason, majority of returns are accepted. However, whenever there is a scrutiny, the revenue authorities do not follow the general policy and make high pitched assessments, which generally do not stand legal scrutiny, when the assessee challenge the order. It is matter of fact that majority of disallowances stand deleted. Therefore, there should be some checks and balances so that the assessing authorities do not make illegal, improper and unjust additions and disallowances.
Avoid source of harassment:
It is general feeling that scrutiny assessment, and proceedings by way of rectification, revision, and reassessment are a big source of litigation and also harassment. This becomes evident when we find that the additional demands raised in such proceedings are mostly vacated. Therefore, it is desirable that government should take suitable steps to put a check on unreasonable proceedings, and additions and disallowances.
Author is a member of ICAI and he can be reached at firstname.lastname@example.org