The amendments proposed in the Finance Bill 2017 on assessment procedures are disconcerting to say the least.  It is ironical that these amendments are clothed in the garb of ‘minimum government and maximum governance’, the professed objective of this Government. Some of the mindless amendments only go to show that legislations in India continue inexorably to be of the bureaucrats, by the bureaucrats and for the bureaucrats. The budget is thus merely presented by the elected representatives to Parliament. It is indeed disappointing that, the bureaucracy still rules the roost and is yet untamed.  

This year’s budget has seen as many as 87 amendments to different provisions and many involving assessment procedures. Interestingly, none of the amendments in the sphere of assessments are tax payer friendly – in fact they are positively against tax payer interest, to take away their liberties. All talks of dealing with tax payers in a spirit of non-adversarial nature has just been glib-talk. 

Where amendments are mistaken for improvements and change for Progress!

The legendary Palkhivala remarked that ‘Our Nation often mistakes amendments for improvements and change for progress’. This continues to be as relevant as it was decades ago.  How else could one explain the barrage of amendments to the Act – 87 amendments out of which 37 relate to assessment procedures, collection of taxes, penalty etc? The last time in recent memory when there were fewer than 50 amendments to the income tax Act was in the Budget of 2011-12 with 33 amendments when Shri. Pranab Mukerjee was the Finance Minister. And that was only because a new animal on the block - ‘The Direct Tax Code’ - was about to be unleased. Assuming on an average about 60 amendments to the Income Tax Act every year, our bureaucrats would have amended, substituted, deleted, re-amended and mutilated the Act more than 3000 times. Surely, for a country that has amended its basic law – the Constitution – more than 100 times in 66 years, this is nothing. Contrast this to the United States of America, where over 225 years, the Constitution was amended no more than 27 times!  That is stability. 

Legislate before you think! 

It might be necessary to say a few words about section 153 here. Dealing with time limits for assessments and reassessments, the provisions in this section has been substituted, omitted, amended and inserted through amending Acts in 1964, 1968, 1970, 1984, 1987, 1988, 1989, 1991, 2001, 2002, 2005, 2006, 2007, 2008, 2011, 2012, 2013, 2014, 2016. Even, the changes introduced in this provision in Finance Bill 2017 end up amending the changes brought only in the last finance Act.  Do we think before legislating? That can simplify tax laws.  The Union of India has formed a disconcerting habit of legislating first and thinking later. Palkhivala’s famous statement continues to be relevant to this day. Going by the spate of amendments coming in, one would think, very soon, one more Committee would be required to untangle the mess. 

Limitations to power, not forbearance in its exercise! 

There are certain amendments that need special mention. The amendment to section 132 and 132A declares that the ‘reason to believe’ and ‘reason to suspect’ respectively before initiating search and for requisitioning books of accounts need not be disclosed to any person, or any authority or Tribunal.  That means that the tax payers are now at the mercy of the assessing authorities as no authority – administrative or appellate – can now come to his rescue even if the reasons for search or requisition are specious or simply motivated.  He has to wait for his turn at the High Court for eternity – for in India, ‘litigation is the nearest thing to eternity’. The ostensible reason that disclosure might compromise on the secrecy and confidentiality required for effective assessment is a hogwash.  Amendments have been made many years ago that material gathered in an illegal search could also be used against the assessee in reassessments. That means, no prejudice is caused to the department as all the information would already be in their possession. Granting unlimited powers to the department to raid any one, and what with political polarization rising, can be dangerous instruments for those in power for the time being. “Man being what he is, cannot safely be trusted with complete power in depriving others of their rights.” Quoting these immortal words of Mr. Justice Frankfurter, in the public meeting in 1972 on ‘Constitution and the Common man’, Nani Palkhivala remarked that ‘the protection of the citizen against all kinds of men in public affairs, none of whom can be trusted with unlimited power over others, lies not in their forbearance but in limitations on their power. A powerful statement that Nani used to highlight the importance of preserving individual liberties.

It looks like India needs a reincarnation of the great Palkhivala to once again establish that it is the people from whom the Government derives power and the government cannot form laws arbitrarily to arrogate itself with more powers than required.

Departmental Store preoccupied with prevention of Shoplifting! 

A related amendment is about increasing the time limit for reopening assessments where evidence is found consequent upon search and the estimate of concealed income exceeds Rs. 50 lacs. All this is sought to be justified on grounds of proceeding against the dishonest tax payer.  While on the one hand, the government claims to have all evidence of high value transactions thanks to the technological advancement, it still wants a 10-year timeframe for reassessment. Limitations of time is an inherent requirement of any taxing law. By extending the existing time limit from 6 years to a whopping 10 years, this government is simply changing the law to make up for its own deficiencies on the ground.  But is there a guarantee that the power will not be misused?  How does one make sure the ‘likelihood’ criterion to be exercised by the Assessing Officer is not indiscriminately applied?  What if the original estimate that the income exceeds Rs. 50 lacs is proved incorrect?  All these are likely to further burden the judiciary that is already tearing at the seams. This Government, like all the previous Governments perpetrates the same mistake of making tax laws only for the dishonest.  As Nani remarked, ‘a departmental store that is wholly preoccupied with prevention of shoplifting is a sure candidate for stagnation’. 

Let me hasten to add that this is not an attempt to sympathise with the tax evader. The concern is that the unbridled powers can be used indiscriminately and the wide scope for corruption and harassment that it lends itself to.

Do the amendments end here?  No, at least one other amendment requires mention. Recently, on a writ petition, the Delhi High Court [TS-5338-HC-2016(DELHI)-O], quashed Circular 1 of 2015 which, based on a narrow interpretation of section 143(1D) instructed Assessing Officers not to process any return u/s 143(1)  where notice under section 143(2) was issued. The judgement was appropriate as completion of scrutiny assessments could take as long as 24 months (now proposed 18 months) from the end of the assessment year and the tax payer should not be kept waiting for refunds which would otherwise accrue if the returns are processed. [I would not like to believe that the present amendment to section 153 will hasten assessments – it is more likely that the section will suffer more amendments to bring back status-quo ante!]. To overcome this, the Government has introduced a new section 241A enabling the assessing officers to withhold refunds where notice under section 143(2) have been issued and where he is of the opinion that the interest of revenue may be adversely affected if the refund is issued before completion of scrutiny assessment. This means that by a simple expedient of recording his apprehension and obtaining approval from a superior who would only be too glad to oblige given his keenness to reach revenue targets, the department can now bypass the judgement of the Delhi High court! 

Are these tax friendly measures?  Is this government any different from the earlier ones when it comes to dealing with assessees?

Stability to tax laws is as important as stability to a family!