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Creating Potential For Havoc

Omkar Goswami


As a seasoned lawyer and Supreme Court advocate, Finance Minister P. Chidambaram has had an excellent bird’s eye view of the mayhem that can be wreaked by the various inspecting arms of the central and state governments. Excise and customs inspectors, sales tax officers, factory inspectors, the guys at the octroi posts, babus of the municipal corporation and, not the least, income tax officers — all these honourable gentlemen have the powers to create bedlam in one’s day-to-day life. And the history of modern India is replete with such instances. The tyranny of the sales tax department, specious demands of excise in the fourth quarter of the year, false assessment of property values by corrupt municipal corporation inspectors, and the early morning search and seizure raids of the income tax department are a part of the nation’s folklore. Having fought several such cases, Mr. Chidambaram knows of these tyrannies better than most.


Yet, in this Union Budget, he has inexplicably widened the intrusive powers of the revenue collecting arm of the State. I refer to the obligation to furnish an Annual Information Return under the proposed section 285BA of the Income Tax Act.


From 1 April 2004, if you have had “specified” financial transactions worth Rs.50,000 or more, you will have list each of these for the year, with documentary evidence, in an Annual Information Return — which has to be then sent to the appropriate income tax authority. The “specified” transactions are (i) sale, purchase or exchange of goods or property, or interest in a property, (ii) sale or purchase of any service, (iii) any works contract, (iv) any investment or any expenditure, and (v) taking of any loans or deposits.


In fact, the wordings are ominous. It is not as if only transactions worth over Rs.50,000 need be reported — although that is bad enough. The text clearly says that the Rs.50,000 rule can be interpreted as “the value, or as the case may be, the aggregate value of such transaction or transactions”. Therefore, if the income tax officer so decides, he can ask you to furnish details of all expenses over, say, Rs.15,000 and then add these up in ways so that they create bundles in excess of Rs.50,000.


According to the Explanatory Memorandum to the Finance Bill, the government considers this as a measure which will widen the tax base. In reality, it is nothing of the sort  — because those who pay no tax will also not provide Annual Information Returns. But for those who do, especially the 75,000-odd citizens of the country who have the honesty to claim that their taxable income exceeds Rs.10 lakh, this proposal will give unbridled authority to the income tax department to snoop and harass. Unless my understanding of the typical income tax officer is completely wrong, I am prepared to bet that at least a tenth of the hapless 75,000 will be hauled up for further scrutiny of the Annual Information Returns. All manner of transactions will be probed and poked into; errors will be “found”; people will be summoned to those terrible, dirty, file-laden, smelly, tea-stained tax offices; threats of raids will make the rounds; and chartered accountants dealing with tax matters will have a field day with their friends in the income tax department.


This is no way of either widening the tax base or conducting more efficient tax audits. If those were my objectives, I would have leveraged the huge IT expertise of this country to channel all my efforts into creating a properly computerised data base within the next six months, and housing these in a state-of-the-art informatics superstructure under the proposed Tax Information Network. Then, as a tax man, I could check if the incomes and transactions of any person with a unique PAN number have been showing up in places other than his income tax return. If enough such flags went up, I would scrutinise these case with utmost diligence.


Instead of focusing on this, we are giving hugely additional power to those who are known to twist things to their end. Surely, that could not have been Mr. Chidambaram’s intent. And if it was not, should he not remove this terrible clause? 


Published: Business world, August 2004


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