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Dear NAMO, Walk The Talk – Here Are 20+ Steps To Deliver Tax Nirvana To Citizens And Foreign Investors

Arun-Jaitley

Prime Minister Narendra Modi and Finance Minister Arun Jaitley spare no opportunity to talk about how they intend to usher in a “transparent, stable and predictable” tax regime. However, there is a big disconnect between the high-sounding words and the reality at the ground level. The author has put together a simple and easy-to-follow guide for the law makers to implement if they are really serious about bringing about radical and structural changes to the taxation regime of the Country

The Honourable Prime Minister of India, Shri Narendra Modi, in his address on the eve of Make in India week at Mumbai on 13th Feb, 2016, has promised more economic reforms and a stable tax regime. It is beyond doubt that the Government is making a very sincere attempt to bring about ease of doing business in India, so as attract more investments to India. We hope that the vision of the Honourable Prime Minster of India and the Honourable Finance Minister gets ingrained at the grass root level. Tax professionals highly appreciate the unequivocal steps taken by the Government to bring stability in tax laws and the firm assurance against any retrospective tax amendments. We are of the opinion that for achieving the dream of Honourable Prime Minster and Honourable Finance Minister following suggestions may be considered:

– Mind set of tax officials in the field must be changed from tax collection to tax service;

– Introduce Accountability provision under the tax laws as per the recommendation of Dr. Raja Chelliah Committee;

– All instructions to the Assessing Officers may be made public;

– All orders of Assessing Officers may be made appealable to Commissioner (Appeals) and all orders of Commissioners/ Chief Commissioners may be made appealable to Tribunal;

– For filing of appeals of revenue before Supreme Court the monetary limit may be increased from present limit of Rs. 25 lakhs to Rs. 1 crore;

– Transparency is needed in appointment of members of the Settlement Commission and also to be debated whether the power to settle the matter may be given to the ITAT;

– In respect of domestic taxation issues, power to grant advance ruling may be given to ITAT by introducing provisions similar to those in the Maharashtra VAT Act;

– Prosecution matters relating to Direct taxes may be decided by two Judicial Members of the ITAT;

– Where substantial questions of law are involved and where different High Courts have taken different views, Tribunal should be able to refer the matter directly to the Supreme Court;

– CBDT may publish the information where the Department has accepted the orders of High Courts or Tribunal;

– CBDT may publish the list of matters admitted by various High Courts on various issues;

– Guidelines issued regarding non-seizure of jewellery in cases of search were last revised in the year 1994. These limits may be increased;

– Statement recorded in the course of search and survey may be directed to be furnished to the assessee within seven days of search or survey, as the case may be;

– Compounding fee may be liberalised. Matters pending before Courts for more than 15 years may be compounded by prescribing minimum compounding fees;

– Sections 54 & 54F may be amended to expressly provide that as long as the amount is invested the benefit of exemption may be given;

– As suggested by Justice R.V. Easwar Committee, ICDS may be postponed at least for few years;

– Huge litigation is on the issue of whether the profit on sale of investments in shares and securities or mutual fund is assessable as business income or capital gains. It may be clarified that if the investment is held at least for more than 30 days it may be treated as investment and those held for less than 30 days may be treated as stock-in-trade; this may bring clarity and help to reduce the litigation;

– One of major source of litigation is disallowance under section 14A. The said provision may be deleted, or alternatively the disallowance of expenditure may be restricted to 2% of dividend income or actual expenditure or as per rule 8Dwhichever is less;

– Large number of the writ petitions before the High Courts are against initiation of reassessment proceedings, as some Assessing Officers do not follow the guidelines prescribed by the Apex Court and other High Courts. Field Officers may be educated on the law laid down by Apex Court and High Courts. Against the rejection order of the Assessing officer, an optional appeal may be provided directly to the Tribunal which should be disposed off within three months of filing of appeal. This may help reduce substantial litigation before the High Courts.

– Linking of all High Courts to the Supreme Court so that the option may be given to argue the matter before Supreme Court by sitting at the respective High Courts;

– Strict implementation of time limit for passing orders by CIT (A) must be done;

– Remand report must be furnished within one month of direction. In case the Assessing Officer is not able to send, he has to take extension from the CIT(A) stating reasons, however maximum time limit should not exceed six months;

– Ease of doing business may be further facilitated by changes in the stamp laws which presently are different in different States. The same may be aligned together to introduce simplicity.

– Professional organisations such as the AIFTP, the Chamber of Tax Consultants, Bombay Chartered Accountants’ Society etc. may be involved by the Government before amendments are brought in to the statute;

We hope concerned Officials in the Ministry of Finance will look in to the suggestions positively. I appeal to all tax professionals to contribute further suggestions in this regard,

Jai hind

ksa_sign
Dr. K. Shivaram

Editor-in-Chief, AIFTP Journal

Reproduced with permission from the AIFTP Journal

Posted in legislation
24 comments on “Dear NAMO, Walk The Talk – Here Are 20+ Steps To Deliver Tax Nirvana To Citizens And Foreign Investors
  1. Manoj says:

    Are the provisions of section 197(c) of the Finance Act, 2016 not a retrospective tax ? Refer q.no 4 of circular no.24 and Q.n.2 of circular no 27.

    suppose I purchased a property in 1980 and at that time I debited the investment in my capital account. Hence my balance sheet is not reflecting the assets although acquired by proper income. I do not have the record as I am not supposed to have the same as per the provisions before finance act,2016.

    Now I have to explain the source to AO other wise the same is unexplained income ???

  2. manish parekh says:

    Who’s listening !!!
    The whole line of bureaucrats are not even bothered about those CBDT instructions ( or for that matter any officcer in other govt department) Sir try & compare the scenario with pre-independent era – nothing but misuse of powers which is programmed in the minds of IRS & IAS brass with the help of the same ACTS & RULES DESIGNED BY THE BRITISH. These were devised in those times to help British Officers to SUPPRESS people. IRS & IAS ACTS dates back to more than 100 years. They are still being enjoyed in the same format even after 100 years. Its time present government to have a re-look at those ACTS and modify them as “rules to administer” from the existing “rules to RULE” – till then it would just be same “leaving” with a comment !

  3. vswami says:

    “– Large number of the writ petitions before the High Courts are against initiation of reassessment proceedings, as some Assessing Officers do not follow the guidelines prescribed by the Apex Court and other High Courts. Field Officers may be educated on the law laid down by Apex Court and High Courts. ….. This may help reduce substantial litigation before the High Courts.”

    The cited suggestion stops short of even making a mention of the principally two different views resulting in distinct and opposing guidelines as handed down by adjudicating authorities, including the apex court. So much so, the scope for AO to invoke section 147 rw sec 148, for making an ‘assessment’ or reassessment has been left open and continues to be a fertile field for litigation. For knowing more, the SC judgment as reported on this website, and the posted comments @ https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwj47evPqYXLAhVUCI4KHaNkBooQFggbMAA&url=http%3A%2F%2Fitatonline.org%2Farchives%2Fdcit-vs-zuari-estate-development-investment-co-ltd-supreme-court-s-1431-147-as-a-s-1431-intimation-is-not-an-assessment-there-is-no-question-of-change-of-mind-by-the-ao%2F&usg=AFQjCNHyLTmbo4kx54pNoa6fC_9QMIIPZQ&sig2=6nlWkYsE9OwBUHXQwvTK_A&bvm=bv.114733917,d.c2E is to be recommended to be gone through, and, if so found fit, made prudent use of in taking on the related issues for appropriate remedial action, to serve the purpose of reducing litigation as intended.

    For info., may be added, the above referred matter has been already made one of the subjects, with suggestions personally addressed / communicated via e’mail to the special committee headed by R V Easwar J for its due consideration.

  4. vswami says:

    Re. suggestion under the item which reads “– Huge litigation is on the issue of whether the profit on sale of investments in shares and securities or mutual fund is assessable as business income or capital gains. It may be clarified that….; this may bring clarity and help to reduce the litigation ; “
    The points of issue and in litigation, under the extant law are whether in a given case profit made on any such sale is taxable as business income, or under the head of capital gains- short or long term. Looking back, to be remembered, that the said issues came to be given a fresh lease of life, and with an added complicity; initially through the CBDT circular of 31-8-1989, and later, as per supplementary instructions issued in 2005. For knowing the intricacies of the attendant complex issues, the analytical study as made in the article published in (2006) 153 Taxman 126 may be gone through. Also the view (s) taken by courts, in particular in the case of CIT v D& M Components Ltd. (Del) (Coram: Justices R V Easwar and Ravindra Bhat) is of relevance. The viewpoints shared in the Article and the lines of reasoning addressed and accepted by the Delhi High court may be usefully kept in focus, in suitably framing and forcefully urging the suggestions .

  5. CA Paresh Desai says:

    Respected Shri Shivramji,
    I will differ from your suggestion for distinction between Capital Gain and Business Income (30 days) in view of provisions under the IT Act has not been amended and secondly would not resist to refer to the ITAT Mumbai H bench decision in ITA No 3469/Mum/2012 and 4164/Mum/2012 delivered on 18/02/2015 published on the website which has covered all aspect of the intricacies of the provisions of the law as stand today. Very Bold decision in the present scenario of litigation. If the view is accepted than provisions will have to be changed first and than the suggestion will be fruitful.

  6. B. Rai says:

    The suggestions made are tax friendly. There should be no problem by the Deptt. to accept in toto. It is suggested that in regard to inition of reassessment proceedings, it should be specifically provided and to hold concerned official personally responsible if it is found by higher authorities that action to initiate reassessment was exercised for ulterior motive or vindictive motive. This will put a check on arbitrary action of tax officials to prevent harassment of assesses .

  7. Hari Agarwal says:

    It is suggested that the cash seized during search operations be kept in Fixed deposit A/c of the Bank,instead of current account-P.D A/c of CIT. This will earn interest. In cases later after the assessments, where the cash sezed is found to be excess,the same is refunded to the assessee along with interest.this interest is paid by the department out of its own funds. Hence if the cash seizedis kept in Fixed Deposit it will reduce interest burden on exchequer.

  8. Rajesh bhardwaj says:

    Sir, excellent suggestions. My humble view is that if the following CBDT instruction of 1955 vintage is implemented in letter and spirit by CBDT and field formations most of the problems bedevilling the tax administration today can be got rid off:- Central Board of Direct Taxes Circular No: 14 (XL-35) dated April 11, 1955. It states: “Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessee on whom it is imposed by law, officers should

    (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other;

    (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.”
    Tax service is the crucial word. Reduction in tax rates to about 15-17% at flat rate and no complex deductions/ rebates/ exemptions etc will also make life easier for tax payers.

  9. RAMESH CHAND JAIN says:

    Assessing officers think themselves to be king when due to bad luck of an assessee his case is selected for scrutiny, they see it to be a hen with a golden groove in order to curtain their wings if a assessing officer propose to make addition of more than 1 lac he must inform the assessee and allow him opportunity to rebut his findings

  10. Varaprasad Daitha says:

    Dr. K. Shivaram’s suggestions are not difficult to be implemented if the CBDT has a positive approach like the Revenue Secretary. But at the field level the feeling of IRS officers is still high handed and presuming that they are the only select few from the Society. They did not realize that their powers are curtailed to a large extent and that their actions are under surveillance.

  11. Jay Shah says:

    Why sec 44AD is required?It should be removed.As on one hand it I’d said that if turnover crosses 1cr Sec 44AB comes into picture mandatory.On the other sec 44AD say if the profit falls below 8%Audit is compulsory.Why this ambiguity with small traders .Secondly deductions under chapter VI A is not permitted if returns are filed u/s 44AD.

  12. CH TRIPATI PATRA says:

    The suggestions posted by various person should have considered by the Govt. in order to create a friendly tax atmosphere. Each & every employee of the tax department should have accountability & responsibility so that they will not act in an arbitrary manner. Revenue should be collected by way of coercive & forcibly rather should be collected in friendly & transparency manner. Particularly, the department should take adequate caution while reopening of the case after audit objection. The system be abolished or the assesse should have given an opportunity to comply the objections raised by the audit team before initiating reassessment proceedings. Because it creates unnecessary litigation & mental agony in the mind of assessee and also not generate any revenues. The govt. should have insert a special provision for filing of return by the assesses those are getting notice as per AIR information or non-filler notice after expire of statutory period.

  13. Dear Sir;

    – Mind set of tax officials in the field must be changed from tax collection to tax service;

    – Introduce Accountability provision under the tax laws as per the recommendation of Dr. Raja Chelliah Committee;

    – All instructions to the Assessing Officers may be made public;

    – All orders of Assessing Officers may be made appealable to Commissioner (Appeals) and all orders of Commissioners/ Chief Commissioners may be made appealable to Tribunal;

    These are the most sought demand of time. This mindset does not allow good intentions to be reality….

    You have rightly pointed out all these.

  14. Natarajan says:

    It is not only field formation in Income Tax Department that is shoddy. I think that even CBDT is shoddy.The classic recent example of the shoddy thinking by the Board would be the Circular No 01/2016 released on 15th February 2016 requesting the Assessing Officers to strictly follow the time lines for 154 petitions. The circular further asks the superior to monitor the Assessing Officer. I feel that it is an acknowledgment by CBDT that its assessing officers are not following the rule of land and superiors of assessing officer are unaware of the actions of the assessing officers.I am also not sure as to what sea change the above circular is going to bring.

  15. CH TRIPATI PATRA says:

    Sir,

    Your suggestions will definitely bring down tax terrorism if those are accepted by Govt.
    Sir, please give a suggestion to Govt. on following points.
    1. Reduce net profit percentage from 8% to 5% u/s. 44AD of I.T.Act as there is no change since its introduction. Now it is very difficult to get net profit @ 8% on turnover.
    2. Abolish the monetary limit u/s. 44AB of I.T.Act so as the assesse will declare their income u/s 44AD of I.T.Act if the net profit will reduce to 5%. It will generate more & more revenue and also reduce unnecessary litigations.

  16. vswami says:

    Selectively (- “…Mind set of tax officials in the field must be changed from tax collection to tax service;..” :
    For most of the war of wits and ensuing prolongation of the battle before courts, are , according to well considered and unbiased view, undoubtedly traceable to , not just the mindset of AOs at the stage of collection – there is no knowing what the other thing of ‘tax service’ made a mention of is intended to convey- but primarily to the adversarial attitude of his right from the stage of dealing with a tax return filed; that too, without proper application and /or appreciation of what the law says and how to apply it to the facts and circumstances of a given case. In one’s long standing conviction, therefore, the predominant doubt is why the CBDT is reluctant to have the AO , at the helm of affairs initially, properly tutored and most fittingly trained so as to equip him and decide how best to safeguard the interests of Revenue but at the same time with the least impermissible harm and hardship to tax payer. Also that, he will not be rightly regarded to have prudently acted ‘in performance of his duties’ of office or acted in ‘good faith’ or ‘intended’ to do so- within the holistic meaning of such concepts, and precincts / framework of the law, – thereby saving himself and the Department from the rigors of, and the dire consequences, as envisaged by the law /ethical standards, – both in the tax code and the common law.

  17. CA Vishwas V. Mehendale says:

    Shivram Saab, all the suggestion are very very reasonable and will have a very long lasting effect on consistency, predictability and assurance about the tax treatments to some of the issues troubling even the small taxpayers.
    Great Initiative from your side. I am sure everyone from the Bar will whole heartedly support all the suggestions made by you.

  18. CA RAJESH SANGHVI says:

    Two more suggestion :

    (1). Like Service tax/Excise, post asst order and before 1st appeal, keep a cap of say 7.50% of the demand to be paid & before 2nd appeal (ITAT)say 15%. In selective cases a lower limit. Upper cap something like say 10 crs.

    (2). Try to Remove concepts of discretionary powers to AO or such authorities because this is subject to abuse.

  19. Vkshah says:

    The suggestions are great. Should have been accepted and implemented in full subject to suitable modification to the issue concerning the investment in shares and securities. By no means any of suggestion has an adverse impact on Revenue,

  20. veeramani says:

    I still remember an incident when I was interacting with a senior official of BCA. He said the member were agitating that the Income-tax Department is corrupt. After introduction of summary assessment scheme and electronic filing of return they are agitating that there is no work. The introduction of Electronic processing of scrutiny assessment and appeals before the appellate authorities will worry them much more. By raising the monetory limit for filing appeals before the ITAT and HCs the work will still reduce for professionals. When I refer to work I refer to the fee also.

  21. Nemin Shah says:

    Sir. The suggestions are great. Even if sone part is implemented,it will bring a lot if changes.

  22. Uppal says:

    Much more need to be done. However overlooking what all has been done amounts to have jaundiced eyes. Step by step sustainable initiatives will be more beneficial s. Pl do not forget to correct your vision.

  23. Hari Agarwal says:

    The suggestions are very good and useful

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