Irrecoverable Tax Dues

Tax laws are always prone to disputes in every nation, except where tax rates are low and the law is simple, which is a rarity

Mumbai: The law of income tax and its implementation and administration in India has always been dispute ridden. Not only is the law complex and never-ending, corruption is rampant and there is also no shortage of tax evaders in our country, all of which give rise to tax disputes. Tax laws are always prone to disputes in every nation, except where tax rates are low and the law is simple, which is a rarity. But India stands out, in as much as tax demands are often hypothetical and frivolous and that reflects in the pathetic track record of the ITD, which manages to win a mere fraction of tax cases it files in appellate courts. The higher courts simply refuse to uphold the huge thoughtless tax demands raised by the ITD on hapless taxpayers. The raising of such frivolous tax demands by the tax officers may be a routine affair for the Department, but due to coercive recovery, high cost of litigation and inability to pay such perverse disputed tax demands, the business cash flows of many an entity takes a body blow and they close down. The fact is that only the large deep-pocketed entities with a battery of lawyers that they can afford can really withstand the arbitrary and coercive tactics of the mighty tax department. In this process of raising highly debatable and contentious tax demands, the tax department verily kills the goose that lays the golden egg, unmindful that only if taxpayers prosper, will tax collections go up. Killing a taxpayer by frivolous and speculative tax demands serves no purpose and is a self-goal scored by the ITD, but this saga of raising frivolous tax demands that torment India’s taxpayers continue without any check or restraint.

According to a report of the Parliamentary Standing Committee on Finance, as of 30.09.19, the Centre had raised tax demands worth Rs. 12.30 lac crores, of which Rs. 12.18 lac crores are termed as difficult to recover. Ironically these tax demands are uncontested, but yet cannot be recovered by the ITD. Yet another report of the CAG which audited the ITD found that it continues to raise frivolous tax demands that are not recoverable and that almost 99% of such demands cannot be recovered. By its own admission before the Parliamentary Standing Committee, the ITD says that it raises demands that are not recoverable and the CAG urged in its report that these demands should be written off. In its routine replies the ITD often says that at times, it is unable to even trace the assessees from whom it claims such taxes. While these kinds of frivolous tax demands remain uncontested, there is reported to be a 60% jump in disputed tax demands between April 2018 to Sept 2019, which have now touched about Rs. 10 lakh crores. Thus the culture of harassment of assessees through frivolous and disputed tax demands continues, with no respite to the taxpayers.

And while the government claims that it is working to make life easier for the taxpayers by simplifying the complexities of the law and reducing corruption and harassment, there is no respite in the coercive efforts of the ITD to recover such disputed tax demands, thus belying the government’s claims in this regard. The question is as to why to raise tax demands and harass the taxpayer when the government loses most of its cases in appellate courts and also why clog the tax department with frivolous tax claims? In our opinion despite the government’s claims that it seeks to mitigate hardship to taxpayers, there will be no respite whatsoever, because frivolous and highly contentious tax demands will continue to be raised unabated, for the following reasons.

1. Pressures to meet tax targets at any cost.
2. Errors in the computer-based assessment.
3. Faceless assessment will give rise to massive disputes.
4. Complications of the law have only increased.
5. Corruption creates disputes.
6. Creating disputes is safe for the officer.
7. No accountability for the frivolous appeals filed.
8. Withholding refunds.

As this saga of creating disputed tax demands and insisting on their coercive recovery continues, EODB erodes, foreign investors are discouraged from investing in India and instead of putting in Rs. 15 lakhs into the account of each person, as was promised by Mr. Modi, due to the coercive recovery, it is the reverse in play.