Unearthing tax evasion can often lead to discovering of other underlying offences. More often than not, it so happens that despite knowing the modus operandi used by tax evaders , law enforcement agencies are unable to prove beyond doubt the culpability of tax evader and it becomes difficult to put on record admissible material evidence which may stand the test of judicial scrutiny .
In this context, the importance of databases available with various governmental agencies cannot be over emphasised. There is an enormous amount of data collected vis-a-vis a particular taxpayer in the form of various transactions undertaken in the economy, foreign and domestic bank accounts , spending patterns , property purchases and other digital footprints . The different government entities regularly report such information to the Income Tax department, albeit in a scattered manner.
For Instance, Sub -registrar office provides information when newly purchased property of a taxpayer is at consideration less than that reported by stamp duty authorities. Similarly information is passed on by CBIC and suspicious financial transactions are regularly reported by banking entities. In addition, data available with immigrations, GST network, registrar of companies etc are massive mines of information. It becomes imperative to mention here that Project Insight of Income Tax Department which is a relatively recent initiative envisages a big data approach to analysing such information stored with various government databases. Big Data analytics however is a quite advanced application which uses mathematical models and statistical predictive tools to bring out correlation amongst structured and unstructured data sets and identifies transactional patterns and other correlations. To be able to harness the full potential of such a data intelligence and analytics, the tax officers will have to undergo technical skill upgradation. If successfully implemented, it can revolutionize the way in which tax administration functions.
To demonstrate the manner in which Project Insight through Big Data Analytics can help this cause, I cite an illustrative example here. Income Tax Department gets information about possible tax evaders from CBIC in the form of importers or exporters who might have over-invoiced or under-invoiced their transactions vis-a-vis normal industry patterns . Customs on their part use various valuation criteria and other parameters such as World Customs Organization(WCO) rules , National Information Database(NIDB) , arms length pricing etc to arrive at a particular assessable value for levying of duties. The information unearthed in the process is then passed on to the Enforcement Directorate and Income Tax department for other possible ramifications under Income Tax Act, 1961 or Prevention of Money Laundering Act 2002 . However, in order to investigate and arrive at any particular conclusion, Income Tax Department needs further data in the form of Let Export Order(LEO) , Out of Charge (OOC), Shipping Bill (SB) , Bill of entry (BE), GST returns filed and other information from GSTN and ICEGATE portals. For this, the IT department normally issues notices under section 133(6) of IT ACT 1961. Alternatively, it also tries to incorporate whatever information it can find in the public domain.
However, issues of times constraints, reliability and legal admissibility make the process quite cumbersome. But with the operationalizing of E-assessment and launch of Project Insight, many such data are envisaged to be integrated with Income Tax database. This could prove to be a major breakthrough in making the investigative machinery more qualitative, efficacious and exhaustive. With such an integrated platform, a better profiling of taxpayer could be created leading to a qualitative assessment. Instead of asking taxpayers a plethora of questions under section 142(1) of IT Act 1961 in the hitherto approach, tax officers could now work with the data already available. This data analysis could help connect the seemingly unconnected dots and create intelligible insights leading to an efficient tax administration.
Disclaimer: The views expressed are personal and not that of government.