Introduction: In a recent representation to the Commissioner of Income Tax, CPC Bengaluru, the Karnataka State Chartered Accountants Association (KSCAA) has highlighted practical challenges faced by taxpayers and proposed solutions. The association commends government efforts in tax collections but expresses concerns over high-pitched assessments and recovery measures. This article delves into KSCAA’s recommendations to streamline tax assessments, reduce appeals, and promote ease of doing business.
Detailed Analysis: The representation underscores the government’s commendable initiatives, such as faceless proceedings, to curb harassment and corruption. However, KSCAA observes a trend of high-pitched assessments, counterproductive to taxpayer-friendly measures. Recovery measures and penalty proceedings, particularly based on Statement of Financial Transaction (SFT) reporting, have raised concerns.
Recognizing the potential lack of awareness among taxpayers regarding e-proceedings and income tax provisions, KSCAA emphasizes a collaborative and educational approach. They propose a table of resolutions for common high-pitched additions, suggesting ways to consider statutory provisions and gather comprehensive information before passing orders.
The suggested resolutions address transactions on the stock market, sale of property, property purchase, credit card payments, cash deposits, and loans/deposits. KSCAA urges a transparent and fair assessment process, emphasizing thorough consideration of available records and legitimate deductions.
The representation calls for the issuance of Standard Operating Procedures (SOPs) guiding officers during assessments. These SOPs should discourage unwarranted additions and promote a holistic approach. Additionally, KSCAA recommends leveraging Section 133(6) of the Income-tax Act for timely acquisition of required information.
Highlighting the automatic imposition of high-pitched penalty orders and its impact on taxpayers and the administrative machinery, KSCAA envisions a reduction in appeals through fair and well-documented assessments. Proactive measures, SOPs, and clear directives on Section 133(6) can enhance fairness and efficiency in tax administration.
Conclusion: In conclusion, KSCAA’s representation emphasizes a collaborative, educational, and fair approach to tax assessments. The recommendations aim to reduce high-pitched assessments, enhance communication, and decrease the number of appeals. Proactive issuance of SOPs and clear directives can contribute to a streamlined and cooperative tax administration, fostering ease of doing business. The Karnataka State Chartered Accountants Association urges authorities to consider their recommendations for a more transparent and efficient tax assessment process.
For more details, you can view the full representation letter reproduced below:
KARNATAKA STATE CHARTERED ACCOUNTANTS ASSOCIATION (R)
Date – 05 December 2023
To:
The Commissioner of Income Tax,
CPC, Bengaluru
The Karnataka State Chartered Accountants Association (R) (in short ‘KSCAA’) is an association of Chartered Accountants, registered under the Karnataka Societies Registration Act, in 1957. In the past, we have written to your grad solves many times populating various issues, challenges and hardships being faced by taxpayers and suggesting possible solutions on the same. Through this representation, we would like to bring to your kind notice, a few practical issues being faced by taxpayers. For every Issue, challenge or hardship highlighted. we have also suggested solutions to address them all.
We laud the efforts of the government in Its consistent efforts In achieving substantial growth in gross tax collections and the introduction of various taxpayer-friendly measures to reduce litigations under the income-tax Act, 1961 (“the Act”). The Introduction of faceless proceedings is a notable stop towards reducing harassment and corruption within the system. However, despite sincere, honest, and best efforts of the Revenue Authorities, we have witnessed a trend of high-pitched assessments which actually neutralizes and works contrary to taxpayer friendly various steps being taken.
The recent focus on recovery measures has once again brought attention to inadequately concluded assessments and subsequent penalty proceedings. Various assessment and reassessment proceedings have been initiated based on the Statement of Financial Transaction (“SFT”) reporting by Institutions, particularly regarding transactions Involving immovable properties, cash deposits, and activities in the stock market.
It is crucial to acknowledge that some taxpayers may not he fully aware of the nuances of ‘e-proceedings; faceless measures, and general income tax provisions. Consequently, there has been a lack of response to notices requesting information. In instances where responses have been submitted, they may be incomplete due to this lack of awareness.
While taxpayers are obligated to address such notices by providing the necessary Information to determine their total income, it is crucial to acknowledge that If taxpayers are unaware, Revenue Authorities should not take advantage of their lack of knowledge. Undertaking high-pitched assessments without duly considering the allowable deductions under the Act may inadvertently undermine the principle of natural justice in tax assessments. A collaborative approach that prioritizes communication and education can enhance compliance and foster a more equitable tax environment.
In addressing these concerns, we have compiled a table outlining common high-pitched additions, relevant statutory provisions dealing with deductions, the source of information, and potential resolutions as below:
| Common high-pitched additions | Statutory provisions dealing with deductions | Source of information | Possible Resolutions |
| Transactions on the stock market including derivative trading | ‘Profit and gains from business and profession’ -Section 29
‘Capital gains’ -Section 48 |
Mutual Fund/ Stock Exchange | Issue of notice u/s 133(6) to Mutual Funds/ Stock Exchanges about the transaction that has resulted in initia notices and obtained detailed information regarding cost etc.
Estimate income based on such information after allowing deduction for cost of acquisition/ expenses. |
| Sale of property | Section 48 of the Act with respect to cost of acquisition and improvement | Registrar or Sub-Registrar under the Registration Act, 1908 | The details of the acquisition (i.e. year of acquisition etc) of the property are evident from the very same documents based on which an addition has been proposed for the transfer of capital assets.
Consider the guidance value of the property and/or issue of notices under Section 133(6) to the sub registrar or other parties involved in the transaction to determine cost of acquisition. Estimate income based on such information after allowing deduction for cost of acquisition. |
| Property purchase | Section 69 | Registrar or Sub-Registrar under the Registration Act, 1908 | The source of investments made through banking channels is evident from the bank statements especially when the same has been financed by way of a loan and accumulated savings/ investments (opening balance / term deposits I sale of mutual funds) |
| Credit card payments | Section 69C | A banking company or a co operative bank | Details of income earned are evident from Form 26AS/ ITR/ Bank statements. Consider these before making an addition. |
| Cash deposits | Section 68/69/69A | A banking company or a co operative bank | Consider immediate previous cash withdrawals as evident from the bank statement before making an addition. |
| Loans and deposits | Section 69 | A co-operative society | Review the records, books and accounts to substantiate underlying Loans and deposit balances as against taking delta difference between closing balances from two Balance sheets. |
These suggested resolutions aim to foster a more transparent and fair assessment process, emphasizing the importance of gathering comprehensive information and allowing for legitimate deductions in accordance with statutory provisions before passing an order.
In light of the above. a proactive approach is necessary to issue comprehensive Standard Operating Procedures (SOPs) guiding officers during assessments. These SOPs should emphasize the importance of meticulous consideration of available records, aiming to prevent unwarranted additions. These SOPs should emphasize on having a holistic approach rather than Just picking standalone data from SFT on a piecemeal basis.
Simultaneously, it is suggested to provide a dear directive to officers to leverage the provisions of Section 133(6) of the Act This would facilitate the timely acquisition of required information, mitigating the reliance on incomplete or inaccurate data.
The automatic imposition of high-pitched penalty orders resulting from the aforementioned issues compounds the challenges faced by taxpayers. This, in turn, leads to demands and initiates recovery measures, causing additional strain on both taxpayers and the administrative machinery.
A noteworthy outcome of implementing these measures would be a reduction in the number of appeals filed. By ensuring assessments are thorough, fair, and well-documented, the likelihood of disputes diminishes. This reduction In appeals contributes significantly to alleviating the burden on the government machinery, saving valuable time and resources.
In summary, the proactive Issuance of SOPs and clear directives regarding Section 133(6) of the Act can not only enhance the fairness and efficiency of the assessment process but also lead to a decrease In appeals. This reduction in appeals, In turn, contributes to reducing the burden on the government machinery, fostering a more streamlined and cooperative tax administration.
At this juncture, we wish to reiterate the taxpayer’s charter that the Income Tax Department is committed to:
Worthwhile reference may also be made to the Circular issued by CBDT dated 11.4-1955, wherein the Board ordered that the officers of the Income tax should not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist the taxpayers In every reasonable way, particularly In the matter of claiming and securing reliefs and in this regard, the officer should take the initiative in guiding a taxpayer, where proceedings or other particulars before them indicate that some refund or relief Is due to him.
Further, we wish to draw your attention to our earlier representation (enclosed as Annexure 1) dated 02/09/2023 on the stay of demand which has not been addressed. We request your kind attention on the said subject matter.
We the members of Karnataka State Chartered Accountants Association, on behalf of the entire Chartered Accountants fraternity and also on behalf of the trade and industry in the state of Karnataka appeal to your good selves to kindly consider our above recommendations on various Issues populated as above. Implementation of the above suggestions will be a major step in the direction of ‘Ease of doing business’.
Yours sincerely,
For Karnataka State Chartered Accountants Association ®
CA. Sujatha Raghuraman, President
CA. Sunil Bhandary, Secretary
CA Babitha G, Chairperson, Representation Committee
Cc to:
1. Smt. Nirmala Sitharaman. Hon. Union Minister of Finance and Corporate Affairs, Government of India
2. Shri. Pankaj Choudhary. Hon’ble Minister of State, Finance.
3. Shut Sanjay Malhotra, Hon’ble Revenue Secretary
4. Shri Kirin Gupta, Chairperson, Central Board of Direct Taxes
5. Smt Chaitali P. PCCIT. Karnataka and Goa
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