‘Risk Management Strategy’ Occurring in Section 148 of Income Tax

1. What exactly does this mean in income escaping assessment context? And that too ‘largely’ by a computer program?

2. What is risk management strategy?. Meaning.

2.1 This is a pure management jargon used in to fit with the corporatization of department being attempted so desperately over past few years. In sync with the times ,fashionably progressive…and all that. Digital lingo has a ditto status. But when that starts dictating the rigours of law, there arises a self made disaster. It has never ceased to amuse me in later part of the decades I spent in IRS. Luckily when this amazingly ill suited corporatization & digitisation started I was well past my silver jubilee and soon bid goodbye!

2.1.1 Law is supposed to be abstract and boring. Solidly old world. But with a charm and depth, and if u can understand, a poetry ,no corporate philosophy can ever have. Anyway, I digress.

2.2 So lets see what this phrase means from where it is lifted.

The risk management strategy reflects the organization’s view of how it intends to manage risk—potentially of all types but at least within a discrete category of risk—including policies, procedures, and standards to be used to identify, assess, respond to, monitor, and govern risk. The strategy specifies strategic planning assumptions, constraints, decision-making criteria, and other factors influencing risk management in the organization, including context-specific and overall articulations of organizational risk tolerance. Risk management refers to the practice of identifying potential risks in advance, analyzing them and taking precautionary steps to reduce/curb the risk.

This is a typical business management concept specially related to finance.

2.2.1 The following flow chart gives us an idea of risk management framework:

Ack: [Stephen D. Gantz, Daniel R. Philpott, in FISMA and the Risk Management Framework, 2013]

3. We got so enamoured by the concept that we have incorporated the same as a hard core substantive provision of law. Tax Planning can be a Part of Your Company’s Risk Management Strategy. But here the idea is entirely different. A contextual interpretation would lead us to believe that tax escaping parameters will be set for a given timeframe which would identify returns of income which meet its criteria. Because the umbrella provision still remains as ‘’ Income escaping assessment’’. Remember? The parameters are apparently risk to revenue parameters (in sense of impermissible tax avoidance or tax evasion arrangements) Does that label of RMS  qualify as a provision of law? The jury is still out awaiting the parameters.

3.1 Devoid of its fancy phraseology it is just a version of CASS-computer aided scrutiny system…..differences being  usage of the term ESCAPE, and creating the term RMS within explicit law creating avoidable challenges. The previous CASS system pretty much did the same-identify case wise parameters needing investigation, allowing in most cases a general scrutiny exercise too, a ‘’largely computer driven ‘’exercise on set parameters and devoid of jargon better suited to fancy corporate boardrooms than the blood and sweat of honest enforcement of a fiscal law.

3.2 Defining parameters is NOT STRATEGY which means the art of planning and directing Strategy involves, setting goals and priorities, determining actions to achieve the goals, and mobilizing resources to execute the actions. Flagging of information per set criteria is just defining or concretising or choosing parameters. The proof is given in the memorandum to the bill itself:

‘’It is proposed to provide that any information which has been flagged in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board shall be considered as information which suggests that the income chargeable to tax has escaped assessment. The flagging would largely be done by the computer based system.‘’

3.3 I dare say ‘information’ as used in a civil law like income tax cannot suggest anything probative by itself. One takes actionable inference from the information.

E.g. Mr. X has deposited Rs.1 lac in cash in his bank account number……on(dated)……

This is information. When I infer that in normal course of business of X,Y or Z type, cash deposits are an unusual incident I create an actionable inference from the information. Per se, any information is inert. In case of a paanwaala who works entirely on cash receipt basis, the same information cannot lead to any sane actionable inference.

3.4 Is this an attempt to shift goalposts per convenience? No consistent judicial view is likely to develop since this would be amenable to change as per the managers of strategy(whatever that means)!One of the primary attributes of sound law is definiteness and defined contours. Here we find neither. This gets me to my second and more basic objection. The definition of ”information” in first limb of s 148 is legally vague & arbitrary :two biggest judicial vices.

3.4.1 Let me set these two concepts very briefly first.

Black’s Law Dictionary (9^th ed) p 1689 provides invaluable definiteness-

VAGUE:

1. so unclear and indefinite as not to give a person of ordinary intelligence the opportunity to know what is prohibited, restricted, or required .

2. (Of a statute) impermissibly delegating basic policy matters to administrators and judges to such a degree as to lead to arbitrary and discriminatory application.

This DEFINITION occurs where unconstitutionally vague is discussed. It opens up a big window of contest ,and dangerously so because its not merely  ‘vague’, but ‘’UNCONSTITUTIONALLY vague’’ is being defined.

The highlighted part clinches it for the assessee-impermissible delegation of basic policy matters (here even more, being delegation of substantive law) to administrators(here CBDT).

3.4.2 The author Bryan A Garner excellently goes on to discuss vagueness doctrine in the same:

vagueness doctrine. (1957) Constitutional law. The doctrine based on the Due Process Clause requiring that a criminal statute state explicitly and definitely what acts are prohibited or restricted, so as to provide fair warning and preclude arbitrary enforcement.

Let the proponents not be unduly enthused by use of the term ‘criminal’ in the definition. It is applicable as much in civil law. Just before this definition is given, VAGUENESS is pinpointed as something ‘’loose and ambiguous’’ and it is said ‘’vagueness raises due-process concerns if legislation does not provide fair notice of what is required, restricted, or prohibited, because enforcement may become arbitrary.’’

(DUE PROCESS(BLACK’S P 575):(16c) The conduct of legal proceedings according to established rules and principles for the protection and enforcement of private rights, including notice and the right to a fair hearing before a tribunal with the power to decide the case.

Some will say ,’’ah but due process is not recognized in the Constitution of India’’. Agreed it finds no explicit mention. But it is very much part of the adjudicatory process now. In  Siddharam Satlingappa Mhetre vs State Of Maharashtra And Ors Cr.A 2271 OF 2010 the hon’ble SC says ‘’60. The framers of the Indian Constitution followed the American model in adopting and incorporating the Fundamental Rights for the people of India. American Constitution provides that no person shall be deprived of his life, liberty, or property without due process of law. The due process clause not only protects the property but also life and liberty, similarly Article 21 of the Indian Constitution asserts the importance of life and liberty. The said Article reads as under:-…….’’

Thomas Cook (India) Limited vs Hotel Imperial And Ors.  127 (2006) DLT 431 hon’ble Delhi High Court  in a civil matter adjudicate on due process (para 25 onwards).Due process was developed by the hon’ble  Supreme Court of India in a series of constitutional law cases in the 1960s and 1970s that culminated in Kesavananda Bharati v. State of Kerala, where the doctrine was formally adopted.}

3.4.2 We come to the second aspect-arbitrary

ARBITRARY (BLACK’S P 119)adj. (I5c) 1. Depending on individual discretion; specific, determined by a judge rather than by fixed rules, procedures, or law. 2. (Of a judicial decision) founded on prejudice or preference rather than on reason or fact. _ This type of decision is often termed arbitrary and capricious. Cf. CAPRICIOUS.

This is relatively easy. The RMS to be determined by CBDT definitely lends itself to this charge of arbitrary in the legal sense-it is dependent on their uncircumscribed discretion and is determinable on their whimsical preference.

4. CONCLUSION:

To me ,the indiscriminate corporatization lingo of RMS has created a debate where none should have existed. It opens up possibilities of challenges of a vires nature as legal definitions of vague and arbitrary inseparably attach themselves to this invasion in law.

Picking up a case in scrutiny is an art-external information, internal research, correlating past records…..ad infinitum And then, such wonderfully worded put to caution notice of AO:143(2) read: Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income-tax authority^, as the case may be, if, considers it necessary or expedient^{……….’’}

‘’If considers NECESSARY and EXPEDIENT’’: This is art and poetry of law. Solidly drafted Unchallenged for decades, having judicial benediction and scaring the wits out of tax evaders. But all that is gone now.

4.1 Take away discretion, you take away judiciousness, take away judiciousness you create automatons and  you get trapped in the same charge you think you were saving the assessee from-vague and arbitrary.

4.2 Yet again, instead of rocketing up the competence and integrity  index of officers we have rocketed up the automatization ….’’ah so this discretion and physical interface is the root of all evil. Let  me take it away and standardise it with corporate best practices and faceless structures. ‘’so the story went. And a remedy was created which appears to be worse than the disease. The earlier assessment ‘’harrassment’’was decried and terms like ‘’tax terrorism’’ got coined. Talk of integrity less and brainless  officers came. In substantial measure, probably rightly so. But, to eliminate that CBDT knocked off the physical interface and the discretion And the scrutiny assessment went from shameless to senseless.

An Orwellian nightmare lingers.

4.2.1 From law enforcement officer(which I always called myself while in active service) to service provider (at, the management jargon gets it again):that’s the journey the revenue has travelled.

4.3 Incompetence shielding has a price tag on it A pretty expensive one If an officer in the battlefield, trained for 20 months at cost of lakhs of rupees to the exchequer in hallowed precincts of National Academy Of Direct Taxesguided by a JC of 10 plus years experience and  Pr.CIT of 25 plus years experience cannot be entrusted to draft a judicially acceptable ‘’reason to believe’’(erstwhile),the revenue is in shark infested waters of incompetence And then ,how can miles away from reality, ivory towers of CBDT ,create informations and strategies which sustain judicial scrutiny?

5. Jury will be out there on this And the verdict won’t please the fancy tie ‘’corpocrats’’manning IT department.[Term ‘corpocrats’ is a pure self invention-the ‘’corporate bureaucrats’’ deserved a new tag].

5.1 Congratulations, they have scored a grand self goal. They will be lucky if RMS is struck down as unconstitutional-the damage will be far less. For the contestants are ready for a kick into an empty goal. As they please, when they please.