The income tax department is on an overdrive and its notices of potential tax evasion are harassing retired people, senior citizens, homemakers and widows. Worse, the I-T department has even sent notices in time-barred cases that are over a decade old and to people without a taxable income
 

On the day, the Union Finance Minister presented Vote on Account for 2014-15 in the Parliament, the Income Tax (I-T) Department went on an overdrive.  It issued a press releases saying - “Letters to be sent to 23 lakh assesses for not filing returns”. Around then a news report said, “40.72 lakh high spenders under tax lens”. It now turns out that the I-T department has sent out notices to lakhs of people who include women homemakers, widows, pensioner or senior citizens. The department thinks these people are tax evaders when most of them do not even have any taxable income or have an income that is well below the permitted no-tax slab. 

Let me discuss two cases that I have personally looked at. Both are housewives and have received similar notices – one is a senior citizen, who had been filing regular tax returns as long as she had taxable income. She ceased to do so after her income went down below the taxable limit. Another had income only from an investment in debentures. Both cases were apparently picked up from the Annual Information Reports (AIR). While the process is fine, the tax department could have avoided creating a needless scare only applying its mind to the tax status of the two women, based on their permanent account number (PAN). Instead it shot off evasion notices, forcing them to seek professional help to file appropriate replies.

I myself have been served notices, not once but thrice, even though I have retired few years ago. Worse, the notices pertain to 1994-95, a period for which the law does not even require me to maintain documents. As a chartered accountant, I am among the few people who does not discard old documents, so I was able to pull out information and responded to the notices adequately. But that hasn't stopped the department from sending me more.
 

To add insult to injury the tax deducted at source (TDS) refund of Rs10,000 due to me for AY 2012-13 is held up only because of their not resolving the issues mentioned above. This was brought to the attention of the Jurisdictional Assessing Officer 11(3)1 at Mumbai and the CPC at Bengaluru by submitting copies of assessment and refund orders on 24 October 2013 and on 3 May 2013 and by updating the Compliance – I-T e-filing on the CPC site on 21 March 2014.

The AIRs are meant to help the tax department catch evasion, it is not a tool of harassment through reckless application or to frighten senior citizens. The Offices of Jurisdictional Income Tax at various locations in the country, which assess those who have filed returns, as well as the assesses, are at a loss for explanation of how this happened. The Centralised Processing Centre (CPC) at Bengaluru, conveniently choose not to respond to the taxpayers’ clarificatory letters and has continued to issue follow-up notices.

Based on the information picked up from the annual information return (AIR), the I-T Intelligence and Criminal Investigation Directorate, based at Delhi, has been routinely shooting out stereotyped computer-generated notices. These notices are being sent to a cross section of citizens for perceived ‘potential evasion of taxes’ in earlier years and also calling upon them to inform the I-T Department, whether they have filed tax returns. 

According to the news report, based the AIR, they claim to “have located potential ‘tax evasions’ (?) of 40.73 lakh persons who have made cash deposits of Rs10 lakh and more, 40.40 lakh purchased mutual fund (MF) units of Rs2 lakh or more, bonds and debentures of Rs5 lakh or more, purchase of company shares worth Rs1 lakh or more, RBI bonds of Rs5 lakh and above, 15.55 lakh purchased or sold immovable property worth Rs30 lakh or more, 20.61 lakh made credit card payments exceeding Rs2 lakh and had interest income of more than Rs50,000 from banks and purchased bullion or jewellery worth Rs5 lakhs or more”.

The I-T department coolly boasts, “We have identified 23 lakh people, who have invested money, but have not filed returns. We will be sending out letters, asking those details of their tax returns. We have already issued letters in 2.45 lakh cases.” A simple check would show the Central Board of Direct Taxes (CBDT) that there are overlaps in the numbers of perceived ‘evaders’ mentioned above. 

A media report says “The Finance Ministry is also developing a module on the e-filing portal that will provide individual taxpayers’ details of returns not filed, ITR-V not submitted, demands not paid as steps towards greater transparency”.  In my opinion, this comment comes rather late. Even today, PAN data is a part of know your customer (KYC) requirement and is embedded in practically every transaction passing through the bank accounts. It also appears in all applications for shares, MF units, bonds, debentures, credit card payments to banks, as also purchase and sale documents for immovable property.

All that is required to resolve this concern is to the track a sample of a few high value transactions by matching the respective names and PAN with the Jurisdictional Officer and/or the CPC to ascertain the veracity of the transaction. Only after due confirmation, should the I-T Department send out notices to people. These notices not only cause needless panic, but also increase the work load at the tax department.  

To elicit the desired information from the presumed “non–return fillers” they could be required to furnish a simple listing/ declaration of the amounts/ sources during a year of incomes from:

•        Interests from all bank deposits savings, FD, RD, Swipe etc. with account numbers

•        Income from Dividends

•        Income from units of Mutual Funds

•        Capital gains on sale of shares or redemption of MF instruments

•        Income from House Property

•        Income from other sources

•        Less: All permissible deductions and exemptions

•        Total income during the year

If the income is ultimately found to be not taxable the matter needs to be closed.

(Nagesh Kini is a Mumbai based chartered accountant turned activist.)