Every year in March, the income tax department chases tax collections in order to fulfil targets for the financial year. But this year the department had kicked up the collection drive a notch. According to multinational companies, tax consultants and chartered accountants, the taxman has been uncharacteristically aggressive.
“In the last quarter of every financial year, we are prepared for tax demands, recovery notices, transfer-pricing orders, etc. But this year the number of notices, calls and follow-ups far exceeded what was anticipated,” said a compliance officer at an MNC, who did not want to be named.
“The department adopted at least six different “out of the ordinary” methods to recover tax dues. Despite these efforts, the Central Board of Direct Taxes (CBDT) is staring at a shortfall of direct tax collection of ₹60,000-80,000 crore,” a tax officer said, declining to be named. CBDT is yet to announce the final numbers. The direct tax collection target for fiscal year 2019 was set at ₹12 trillion.
The aggressive tax collection drive flies in the face of the ruling Bharatiya Janata Party’s pre-poll promise in 2014 to end “tax terrorism” if it came to power. Although finance minister Arun Jaitley pledged a friendlier tax regime, tax officials, driven by unrealistic targets set in the union budget, are under pressure to boost collections.
An email sent to CBDT on Friday and a reminder on Wednesday remained unanswered.
“A Mumbai-based MNC, which is headquartered in the US, was asked to cough up 60% of the tax demand. And they did pay up fearing harassment,” said a tax consultant.
Another pharmaceutical company was levied a tax demand of over ₹70 crore. Sick of repeated calls from the taxman, the firm decided to pay up a portion of that demand.
According to The Income-tax Act, 1961, the assessee has to pay 20% of the tax demand pending an appeal.
“The pressure this year was to fulfil a huge target. It was mostly on two grounds: to chase the demands of this year and to open previous years’ assessments. The taxman this year has sent out notices to many mid-sized MNCs for re-opening of previous assessments going back to six years,” said Girish Vanvari, founder, Transaction Sqaure, a tax, regulatory and business advisory firm.
The taxman this year also used a rare provision to collect dues directly from bank accounts. This provision in the I-T Act allows the tax authorities to freeze the bank accounts of taxpayers and deduct money directly from these accounts. Previously, this section was used only for wilful defaulters.
“In February and March, several letters were sent out to banks to deduct money from the account holder (a suspected tax evader) and pay directly to income tax department. This was also done in cases where the tax demand was not appealed or the upfront payment of 20% was not made,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP. “In some cases, taxpayers were called to pay up, or else their bank accounts would be frozen,” he added.
In addition, the cut-off period for passing final international taxation orders was slashed. Typically, draft orders are passed in December and orders by the Dispute Resolution Panel confirming the order and final orders are passed by June.
“This year the timelines were reduced to the extent that the final orders were passed by February. In some cases assessees were not given the final assessment orders before the tax demands were raised,” said a lawyer who heads the tax practice at a large consultancy.
The number of calls and notices raising tax demands also increased manifold over previous years. In some cases, the assessing officers have been making persistent demands on taxpayers, with short deadlines that left assessees with little time to appeal.
“The revenue department has been pretty aggressive in their tax collections this year based on our experience. This was particularly evident on tax deducted at source and advance tax fronts. There was pressure on assessees to deposit the tax demands much ahead of the closure of the financial year,” said Maheshwari.
The assessment orders gave taxpayers only seven days to meet the demands, instead of the prevalent 30 days.
One such public case concerned Uber India Systems Pvt. Ltd which filed a writ petition in the Bombay high court contesting the demand notice, which had asked Uber to pay up in seven days. The high court, in an order on 2 May 2018, ruled that Uber had 30 days to appeal against the tax demand. The company has appealed and the matter is now pending before the income tax tribunal.