December is normally a hectic season with most of us busy in completion of time-barring assessments. However, there seems to be no respite even thereafter due to the recovery proceedings.
With effect from 1st June 2006, the due date for time-barring assessment has been preponed from 24 months to 21 months from the end of the relevant assessment year. This has been done mainly to enable the Tax authorities to collect the demand in the same financial year in which the assessment is made.
The importance of timely tax collection needs no emphasis as without it the budgetary process will lose practicality.
Budget is an estimate for Government’s expenditure and earnings. The same would undergo a change depending upon the performance of the economy. Also tax, which is one of the important sources of revenue collection of the Government, is basically a charge on the profits, sales or production, etc. depending upon the nature of tax.
It is the duty of each individual, enterprise or entity to pay the right amount of tax. So also the Revenue authorities are legislatively empowered to demand the correct tax from the public by making assessments that can stand the scrutiny of judicial review.
Along with this judicial aspect, there is an administrative side of any Revenue department. Based on the budgeted receipts and expenditure, each revenue-earning department is given its target. These targets are normally given to assist government to facilitate its revenue collections. This also helps to seal revenue leakages in the system. Further, Revenue Officers are also motivated to work with alertness with a certain goal before them.
The problem starts when the Revenue authorities focus only on their targets. This creates confusion in the role of a Revenue authority. Instead of focussing on charging correct tax, they focus on collecting taxes to achieve their annual collection targets. In the whole process the aspect of legality gets lost.
The approach of meeting ‘collection targets’ results into the following types of undesired consequences :
1. The assessees face ad hoc, fictitious disallowances in the assessments.
2. This results into unwanted litigation and harassment of assessees.
3. Many times the Assessing Officers admit that the disallowances will get struck down at appellate level, but they make the disallowance to meet the collection target.
4. No refunds are granted to the assessees in the month of February and March.
5. The Assessing Officers call up taxpayers during the first weeks of September, December and March to ascertain the quantum of advance tax.
6. Assessments of TDS returns get focussed on collections rather than considering merits of the case.
7. Even the first appellate authority i.e., Commissioners of Income-tax (Appeals) get driven by these targets and at times are reluctant to either fix the hearing or pass orders in March, especially if their order will result into granting immediate refund/relief.
8. At times the Assessing Officers demand payment of tax as per the ‘demand’ even though there are apparent mistakes in the order and application for rectification is pending. They say that the mistake would be rectified in April and refunds would be granted.
9. The pressure of collection also results into rejection of ‘stay of demand’ applications — even in cases where granting of stay is otherwise justified.
10. The assessees at times are threatened with coercive steps, such as attachment of bank accounts and other assets.
There could be many other consequences which would result into hardships to the assessee due to ‘collection targets’. At times it has been observed that even in the Courts, the representatives of the Revenue Department unofficially admit that certain acts of the Assessing Officers are result of the ‘collection pressure’.
This attitude of the Revenue authorities could result into change in the mindset of honest tax-payers and in the process losing faith in the system.
In fact the targets given to the Revenue authorities should be to complete assessments, pass rectification orders and grant refunds, etc. Further, in the monthly/yearly evaluation, each officer should be evaluated not only on targets achieved by him, but also on the basis of orders passed by him, analysing as to how many orders have been subjected to appeal or revision by the Commissioner; or rectification. The additions made in the assessment order should be sustainable. Only correct tax collection would help the Government meet its budget. The additions/disallowances made should be monitored by the authorities, keeping in mind how these would stand the test of legality. The target of the Government should be to collect ‘tax judiciously’ in a simpler way instead of collecting ‘more’ tax coercively, a large part of which would ultimately get refunded subsequently. Collection of tax should not be a ‘cash flow’ objective of the Government.
To conclude, I would say :
Fixing of targets is good because targets motivate and encourage performance. However, fixing of unrealistic targets is against the taxpayer’s charter and vitiates the economic environment.
I am sure, my suggestion fits into the philosophy of ‘Kautilya’.
