STRATEGY FOR RECOVERY
Since the very beginning, the focus needs to be on the reduction of Arrear Demand by de-duplication of the entries and cleansing the arrear demand data. Priority should be accorded to reduce entries of amounts less than Rs. 10000/- and those pending for more than 2 years. These steps have already been reiterated in the SOP several times. In addition to these, care must be taken to avoid generating any infructuous demand. Simultaneously, the work of executing Write-off under summary procedure must be carried out.
The following are the steps that may be taken by the field units to manage arrear demand.
1. Assessment Work
Quality assessment orders should be issued and legally sustainable demand be raised. During the assessment, the AO should gather all details about assets of the assessee so that effective recovery can be made after issue of notice of demand. In appropriate cases provisional attachment of assets may also be made by invoking section 281 B of the Income Tax Act, 1961 so as to protect the interest of revenue. There should be error free reporting of dossier demands.
2. Initiation of recovery measures
Complete information about the assessee, details of directors and sister concerns etc. must be gathered during the assessment proceedings. AO must maintain a recovery folder containing the details of all bank accounts of the assessee’s, debtors, details of assets (both movable and immovable).
Bifurcation of cases into actionable and non-actionable cases should be done. Actionable cases are those wherein the “non-actionable demand” is either nil or is very small. Non-actionable cases are those having large amounts or major amounts of demand in the following categories:
- Cases where demand is pending write off
- Assessee is not traceable
- Cases where there are no assets/inadequate assets for recovery
- Demand raised on protective basis
- Cases where Department has lost in appeal but the demand is outstanding for other years as it is in further appeal
- Notified persons under the Special Court (Torts) Act, 1992
- Cases before BIFR
- Companies under Liquidation
- Cases before Income Tax Settlement Commission (ITSC)
- Demand stayed by Court/ITAT/IT Authorities
- Demand not enforceable as Bank Guarantee has been given
- Demand where assets jointly attached with other agencies
In the case of non-actionable demands, as in-depth review in each of the cases must be done at least quarterly, before submission of dossiers to determine the status of the case and to make efforts to convert these from the non-actionable to the actionable category. For example, if the case is before the Settlement Commission, it would require maintaining liaison with the ITSC to have an early hearing and disposal of the case.
AO should ensure that the operational bank accounts are attached so that there is effective recovery from the bank accounts and infructuous work is avoided. Assets of partners/directors of defaulter firms/companies can be ascertained and considered for attachment. Attachment of debtors can be pursued more actively. For tax defaulters who have deceased, legal heirs should be located. Similarly, in case of firms/private companies, partner/directors can be traced for further recovery. For these purpose, information available in Individual Transaction Statement (ITS) may also be referred to. The 26AS in such cases may also be viewed to track payments to the defaulter.
Files may be examined for implementation of provisions of sections 281(1) of the Act to declare transfers of properties as void, if made to avoid claims in respect of taxes or sums payable on account of pendency of any proceeding under the Act or after completion thereof but after service of notice under Rule 2 of the Second Schedule.
Further, summons can be issued to assesses and their statements recorded to gather details about immovable and movable assets owned by them. Recovery surveys can be mounted to enforce collection. Mechanism for making field enquiries, enquiries from the directors/partners/promoters/legal heirs/legal representatives/ authorized representative etc. should activated.
3. Use of internal and external resources in recovery matter
Access to Individual Transaction Statement (ITS) has been provided to all the Range Heads. The ITS can be used a very effective tool for recovery especially in cases where demands are difficult to recover.
One of the means to enforce recovery is through correspondence with the CIBIL (Credit Information Bureau of India) that contains PAN-wise records of loans etc taken by entities from banks/financial institutions. The organization assigns Credit Scores to borrowers depending on factors like repayment patterns, defaults, loans taken etc. The demands, which have been confirmed in first appeal, could be considered for such verification. Further, since CIBIL also contains information about the credit rating of such entities, this would also help in ascertaining the financial capability of the PAN holders against whom demand has been raised. This channel is expected to be effective as the CIBIL contains information about loans/credit etc taken by different entities.
The help of the Investigation Wing can be taken in important cases for recovery. In appropriate cases reference may be made to FIU-IND through DIT(Recovery) to obtain information about bank accounts and other assets of the assessee.
4. Priority disposal
Identification of high demand cases pending before the CsIT (A) should be done, particularly the ones in which there is likelihood recovery of substantial demand. The CsIT(A) should be requested for early disposal of such cases.
Providing timely Remand Report to CsIT(A) / ITAT will prevent delay in disposing-off the appeal. Monitoring the progress in high demand cases before ITAT and preventing Departmental Representatives from seeking adjournment in such cases without prior approval of the respective Pr.CCsIT/CCsIT should be done. Where possible the Assessing Officer may be directed to assist the Departmental Representative, at the time of fixation of high demand cases and where paper book is required to be submitted.
5. Stay of Demand/Instalment
Stay and instalment should be given within parameters of instruction no.1914 as modified vide F.No. 404/72/93-ITCC dated 29.02.2016. All stay petitions need to be reviewed from time to time, especially when granted by IT authorities. Carte-balance stay by the field officers should not be given. In case conditional stay is given upto a particular date or disposal of appeal by CIT(A), whichever is earlier, attempt should be made to collect part of the demand before considering the stay petition.
While granting instalment for payment of arrear demand, the amount of instalment should be commensurate vis-à-vis the total arrear so that the instalment is not of a meager amount. In cases where there is a default in payment of instalments, there must be a review of the instalments granted.
The Apex court in a case of Vodafone had directed the company to pay 25% of the taxes and balance 75% by way of bank guarantee, even before admittance of the appeal. The underlying principle is that the Government needs funds in public interest and there should be no impediment in recovery of taxes. Accordingly, the Standing Counsels may be briefed to take up the matter before Court/Supreme Court for vacation of stay on such lines. The Standing Counsels may also be advised to explore the possibility of filing caveats in cases where the taxpayer was likely to seek stay from High Court to prevent granting of stays in large number of cases.
Regular monitoring of demands locked up at the level of CIT(A). ITAT, High Court, Supreme Court, Special Court, Settlement Commission, etc may be conducted. ITAT needs to be requested for vacation of stay and early hearing of cases especially in high demand case. Similarly, the Department Representative may be advised to plead for payment of taxes in cases of stay before the ITAT.
6. Assessee Not Traceable and having No/Inadequate Assets for Recovery
Usually cases of ‘assesses not traceable’ or ‘No assets for recovery’ remain unattended. Such cases need to be reviewed urgently to see whether further efforts can locate the assessee or assets. All avenues of available information needs to be explored and action may be taken as per the procedures laid down in the Board’s letter dated 29-09-2011, 27-12-2011 and 26.09.2014. The reports prescribed as Annexure –I, II, III & IV of the said letter should be prepared after due diligence. In case of companies, provisions of Section 179 may be invoked in suitable cases to effort recovery from directors.
7. Demand Not Under Dispute
In the category of ‘Demand not Under dispute’ identification of the amount ‘recoverable’ and ‘difficult to recover’ should be done by placing them in separate baskets as per the proforma devised by the Directorate of Recovery and communicated to the field authorities. Thereafter, the recoverable portion of the demand is to be collected.
8. TRO’s Action Plan
The AO should refer cases of arrear demand to the TRO at the beginning of the F.Y. and provide him with all the relevant information available pertaining to the assessee for effective recovery. It is expected that TROs are posted in substantive capacity in all charges throughout the year on priority basis. Progressive disposal of the Tax Recovery Certificates by the TROs has to be monitored and achievements projected quarterly for status review by the CBDT. TRCs pending for more than 2 years should be disposed-off on priority basis.
TROs may exercise the powers for appointment of a receiver for business under the provisions of Rule 69 Schedule II of the Act. Attachments can be made of removable assets u/s 226(3) of the Act and of immovable property under Rule 48 of Schedule II. TROs should be directed to dispose-off properties under attachment in suitable cases.
The machinery of the TRO should be strengthened by providing more infrastructure and manpower. The TROs should be further trained specifically for their work in order to increase their effectiveness. The Pr. CsIT need to monitor the work of TROs especially in the area of attachment and sale of property to ensure that the attached properties are sold within one year.
In respect of non-compliant defaulters, the provisions of arrest and detention as per the provisions of Rules 73 to 81 of Schedule II should be invoked by the TRO. Stringent action can be taken in suitable cases including use of the provision for prosecution u/s 276C(2) of the Act.
In liquidation cases, there should be prompt lodging of the claim Official Liquidator and thereafter proper coordination be made with the Official Liquidator. Pr.CsIT may instruct AOs/TROs to monitor cases in Debt Recovery Tribunals (DRTs) working under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 and to consider lodging of claims of outstanding demand in such cases before the DRT.
9. BIFR CASES
For BIFR cases, the website www.bifr.nic.in should be checked regularly to obtain information about cases that have abated/ discharged from the BIFR or where the rehabilitation period has expired; in such cases there is no bar of recovery. The list of BIFR cases which have been removed from the register of BIFR has been apprised to the relevant charges and unfettered recovery of such demands can be made.
10. Demand Management
At times, arrear entries are existing because of pending rectification orders, faulty TDS credit pending appeal effect , etc. The data pertaining to arrear demand, as uploaded on CPC portal as on 01.04.2016, requires to be properly reconciled, verified and confirmed. Field authorities must dedicate adequate time for recovery in every quarter during the year.
11. For Recovery from Tax Defaulters
Names of wilful defaulters are now being put on public domain i.e. Departmental Website and Publishing in Newspapers.
It is suggested that after due notice, PAN of such defaulters should be blocked in our system, in a such a way that these defaulters should not be allowed to file their Return of Income, which means that they cannot avail the benefit of carry forward of Business Loss and Losses under other heads where filing of Return of Income u/s. 139(1) is mandatory.
List of such Blocked PANs can be shared with credit rating agency like CIBIL & Banks, so that these defaulters are not sanctioned any loans or overdraft facility by Public Sector Banks, as the same is bound to become NPAs. Further, Ministry of Finance can be suggested to withdraw facility like LPG Subsidy etc. which are directly credited in to the Bank A/cs, for the said defaulters i.e. Disincentive to be a tax defaulter.
List of such blocked PANs can be circulated to Registrar of Properties with a request for not allowing any registration of immovable properties where such PANs are involved and intimation of all registration requests with such Blocked PANs must be sent to DIT (Recovery), who can then disseminate the same to the field, for effecting recovery.
CBDT may negotiate through Ministry of Finance – Banking Division for subscribing to CIBIL on a centralised annual payment basis and all Pr. CsIT can be given password to access the CIBIL Data, so that AO & TRO under the guidance & control of Pr. CIT can find out about Bank Accounts/ Transactions of defaulters, for taking necessary recovery actions.
12. Write –off work at the level of Local/ Regional/ Zonal Committee level.
Cases must be processed for write-off especially where it has been ascertained beyond doubt that assessee is untraceable. References can be made as per Instruction number 14/2003 dated 06.11.2003; 7/2004 dated 19.08.2004 and 2/2010 dated 18.03.2010 and other relevant Instructions. Quarterly report on the meetings of Zonal Committee should be sent to the DIT (recovery), alongwith the minutes of the meeting.
13. Procedure for recovery of demand where assets/ money lie abroad.
Tax authorities have enough powers to enforce the collection of taxes owed by a taxpayer, However, due to jurisdictional limitation, these powers con not be exercised when the taxpayer has left the jurisdiction without paying the tax dues or has no assets within the jurisdiction that may serve to recover the debts. The provisions for Assistance in Collection of Taxes in DTAA and TIEAs provide the legal basis for rendering assistance by one Contracting State in the collection of tax owed to the other Contracting state.
The provisions for Assistance in Collection of Taxes are present in 48 out of 94 DTAAs and in 3 out of 16 TIEAs which are in force in India. The Multilateral Convention and the SAARC Multilateral Agreement also have provisions for assistance in collection of taxes. However, in the Multilateral Convention, the signatories can place a reservation against providing such assistance and several countries / jurisdictions have put in such reservation. The Manual on Exchange of Information lists the countries / jurisdictions with which India has an agreement under one or the other treaty for assistance in collection of taxes.
The assistance in collection is provided under the treaties in respect of a “revenue claim”, which is normally defined to mean an amount owed in respect of a tax imposed in the country requesting assistance. The claim should be enforceable under the law of the requesting country and should normally be undisputed by the taxpayer. It should be owed by a person who, at the time of making the request, cannot prevent its collection under the law of the requesting country. Most importantly, the requesting country should have taken all reasonable measures for collection of the claim under its own laws and administrative practice. Some treaties all assistance in collection even if the revenue claim has not reached finality. In such cases, requests for measures of conservancy may be made. However, the amount of claim should be quantified and evidenced by a statutory order or notice.
Section 228(2) of the Income-tax Act provides that where an assesse is in the default or is deemed to be in default in making a payment of tax, the Tax Recovery Officer may, if the assessee has property in a county outside India with which the Central Government has entered into an agreement for recovery of income-tax, forward to the Board a certificate drawn up by him under section 222 of the Income-tax Act which may be forwarded to the other country under the terms of the agreement.
In cases where assets/money lie abroad and where the tax treaties provide for assistance in collection of taxes, the officers concerned may make a request to foreign tax authorities to collect the “revenue claim” or take conservancy measures in accordance with the provisions of the treaties. This request should be made through the Indian Competent Authority, i.e., JS(FT&TR-I) or JS(FT&TR-II) as the case may as per the procedure prescribed in the Manual on Exchange of Information.
(Above been Republished with Amendments to earlier Article on the Subject)