The Hindu Business Line : Don't flog the entire flock

However, if a recent guideline of the Central Board of Direct Taxes (CBDT) is implemented, one would be going back in time with regard to collection of tax.

With the ostensible intent of boosting revenue, the CBDT has elaborate plans as to what cases to pick for compulsory scrutiny.

What the list means

The first impression that one gets on seeing this wish-list is that it would be preferable for the I-T Department to go on a massive recruitment drive and take all cases for scrutiny since the list reads like the Who's Who of Indian business and the only ones left out are the hapless salaried class and the beleaguered sick companies.

The reasons for this are not far to seek — the salaried class cannot run up any tricks with the Department, thanks to stringent withholding taxes, and sick companies can only pay paltry taxes in kind which is not permitted.

If one puts approximate numbers against this list, a total of around 25,000 companies is thrown up at the minimum of the scale. The additional revenue generated from scrutinising these companies would be a pittance compared to the cost and time involved in scrutinising such a large number of companies.

With the advent of the securities transaction tax (STT), broking companies or brokers coming under the purview of STT would be few and far between. Considering the fact that volume of business and profits reflected therefrom vary from individual to individual, prescribing minimum benchmarks of profit vis-à-vis revenues, such as 10 per cent for brokers and 20 per cent for chartered accountants, appears unjust.

Similarly, the need to scrutinise the returns of every company that declares a net profit of Rs 50 lakh or above appears to be harsh.

While it is seen from the guideline that the need for this arose due to some instances of false deductions being claimed, the CBDT should realise that there will be black sheep in every flock and the way out is to identify those black sheep by scientific means rather than flogging the whole flock.

Let's shake hands

With increasing compliance and buoyant tax revenues, would it not be preferable to shake hands with the taxpayer than keep on inviting him to the tax office and find ways and means to extract more from him?

The CBDT needs to prove that the statement of Coleman Andrews applies to India.

Considering past history, one feels that if status quo is maintained, it would be more than sufficient to ensure proper compliance.

(The author is a Hyderabad-based chartered accountant.)