Written in : March 1999

There are some big changes proposed in this Budget with regard to tax assessment and appeals which deserve close scrutiny.

Some years back the government introduced File, Smile and Go – a system where returns would be accepted as filed and most cases would not undergo a detailed scrutiny assessment. The scheme was introduced for various reasons, mainly on the realisation that voluntary compliance of law was the only practical way of law enforcement.

The Scheme had a provision for summary assessment. In this, the tax officer would cursorily examine the return and documents filed and check out if there were any obvious and patently wrong claims. If so, he would make prima facie adjustments to the return filed, demand tax arising on account of the adjustments and close the matter. Also, to deter you from making such patently wrong claims, he would levy an additional tax of 20% of the tax levied on the adjustments.

Over 95% returns are being accepted without a scrutiny assessment and all of them undergo a superficial examination by the officer. Only the rest 5% or so are taken up for a detailed scrutiny.

The scheme was fine. However, tax officers being what they are went overboard with the power to make adjustments. Totally unjustified adjustments were made in thousands all over the country. Much litigation resulted from that.

Now the government proposes to totally do away with the law of prima facie adjustments. The new changes result in this scenario: you file a return, the tappal clerk acknowledges it and you take back the acknowledgment home. The acknowledgment is now legally considered to be the intimation, or the summary assessment order if you wish to so call it. The officer will not have the right to make any adjustments for any wrong claims you make in the return. Consequentially, he will not have the right to levy any additional tax. He will send you a separate intimation only if he finds a short payment of tax or a refund due to you.

So?

In theory the original scheme was perfect. Officers should have the right to make adjustments for patently and obviously wrong claims in the returns. It is an absolute essential in a scheme where only a minuscule percentage of returns are to be scrutinised for assessment. If the proposal becomes law, there is nothing to stop taxpayers from making wrong claims and get away with it. Nor is there a deterrent like additional tax, which is a salutary provision.

The proposed changes are good neither for the department nor for the taxpayer. Let me illustrate.

Suppose you file a return claiming a rebate of 25% toward payment of life insurance premia, PPF etc while the law permits only 20%. The officer will either have to meekly accept whatever you return because he cannot make prima facie adjustments. Otherwise, he will have to take up your case for scrutiny – howsoever small it might be otherwise. Once he takes it up for scrutiny, it is essential and normal for him to do a good job of it. So he spends much more time on the case than it deserves.

Now, it is okay if yours were a solitary case. But there are thousands of cases where taxpayers make claims wrongly, knowingly or unknowingly. If the officer were to go through a scrutinised assessment process for all of them, the spirit of the scheme and his focus on large cases would vanish. Both the officers and the taxpayers would be bogged down by avoidable scrutiny work. The department just does not benefit from this – unless this is a hidden go by to the File, Smile, Go scheme. If so, it is utterly foolish – the department is simply incapable of making a scrutinised assessment in each case.

The absence of additional tax is equally wrong. You need a deterrent against people making wrong claims. Else, how will you stop them?

For the taxpayers, the scenario is not very encouraging unless you want to make wrong claims and take a chance of getting away with it. Given a choice, would you mind some additional tax for an error in the return, or would you prefer a scrutiny assessment for simple errors? I don't think we need to guess the answer.

My hope is that the government will realise its folly and roll-back this retrograde proposal. It is good for none. At the same time, it should install effective mechanism to ensure that prima facie adjustments are not made like they were.

Together with the File, Smile, Go scheme came mandatory interest – essential compensation to government for defaults committed by you either in payment of advance tax or in filing returns. This again has been a salutary provision in law. The interest charged is 2% per month for every month of default.

However, government offers a lower rate of interest on refunds issued by it. This anomaly has been highlighted often.

Government has now proposed that it will charge only 1.5% per annum and not 2% for defaults in payment of advance tax and filing returns. This most welcome change will take effect from June 1, 1999.

However, interest payable by you for default in deducting and payment of TDS will attract interest at 18% per annum as against 15% presently.

There are really big changes proposed to the law relating to appeals. If you recall, since last year there is now a direct appeal to the High Court from the Tribunal. The law also required payment of Rs.10,000 for income tax appeals and Rs.5,000 for wealth tax appeals.

This Budget now proposes to remove the appeal fees and only court fee payable under the court rules will now be required to be paid on appeals filed before the High Court. The cost of appeals will thus be reduced substantially.

Presently, there is no time limit for disposal of appeals by Commissioners (Appeals) or the Tribunal. This has resulted in much delay in disposal of appeals. The Budget now proposes a time limit for disposal of appeals so as to 'ensure accountability as well as to ensure disposal of appeals within a reasonable time-frame'.

According to the proposal, the Commissioner (Appeals), where it is possible, may hear and decide every appeal within a period of one year from the end of the financial year in which the appeal is filed.

The Tribunal where it is possible may hear and decide every appeal within a period of four years from the end of the financial year in which the appeal is filed.

Similar changes are also proposed for wealth-tax appeals.

This is something we have been demanding for a long time and is most welcome.

Another big changes is that the Tribunal is now given the power to award costs. You know that courts have powers to award costs but the Tribunal never had such powers.

The proposal is introduced with a view 'to discourage filing of frivolous appeals'.

Thus, if the Tribunal finds that frivolous appeals are filed before it – which ought not to have been filed – it may award costs to the other party. The Tribunal may award costs not merely to the department for your filing frivolous appeals but also to you for the department's filing frivolous appeals.

This is another move we have been demanding for a long time and is again most welcome.

Next time you file a return, you will also have to fill in information about your bank accounts and credit cards. This will also help the department to incorporate bank account number on refund vouchers while issuing refunds.