The Hindu Business Line : Knowledge gaps leading to revenue loss

IT IS virtually impossible to keep track of the crores of rupees of revenues lost because of what is called the slackness on the part of tax officials. Time and again, courts have drawn the attention of the Government to the failure of the tax machinery on this count.

Though compulsory tax audit has been in vogue for some two decades, the officers concerned have often been found ignorant of the basic provisions of the law in this regard.

Penalties are levied, without the approval of higher authorities, for failure to get the accounts compulsorily audited; when such penalties are cancelled by the Income-Tax Appellate Tribunal, the Department cuts a sorry figure and generally ends up filing appeals before the High Courts.

In the Sree Malathy Chit Fund (P) Ltd (278 ITR 258) case, the Madras High Court pointed out that apart from the need to get the approval of the Deputy Commissioner, there was the further illegality of initiating action under Sections 271A and 272(2)(a) rather than Section 271B of the Income-Tax Act, 1961 and on this ground, too, penalty had to be cancelled.

The accounts were audited in accordance with the company law provisions and, to that extent, the assessee was protected by Section 44AB of the Act. The nature of the receipt itself was not in dispute and the amount was also shown in the balance-sheet. Why, then, did the I-T Department move the High Court?

Time-barred assessment

In a search case, the due date for completing the assessment was March 31, 1997. The assessee was directed to get the accounts audited under Section 142 (2A) on March 11, 1997. The auditor submitted his report on July 8, 1997.

The assessing officer (AO) then completed the assessment on November 7, 1997. The assessee objected on the ground that the limitation for completion of assessment was only up to June 9, 1997, whereas it was completed on November 7, 1997, and hence the assessment was bad in law.

The Tribunal agreed and cancelled the assessment as time-barred. The Department went on appeal before the Madhya Pradesh High Court. The court examined Sections 142(2A), 153(2) and 153(3) and Explanation 1(iii) as it stood at the relevant time. The time spent in getting the audit report will have to be excluded while considering the limitation. In such a case, the assessment ought to have been completed by the end of July or August 1997. The court noted that the extended period does not reach up to November 7 and agreed with the Tribunal that the assessment was barred.

The more interesting part of the case concerns the stringent observations of the High Court: "We are constrained to observe that the assessing officer in passing the assessment order did not discharge his duties to the best of his knowledge, acumen and dedication, thereby putting the Revenue to a huge tax loss. He being a very senior assessing officer should have known the law of limitation, which governs the case in question. There is valid reason that a senior officer of the status of the Assistant Commissioner must be quite conversant with the time limit within which he has to complete the assessment of this nature.

"Indeed, when he could pass the order on November 7, 1997, why he could not do so before July, 1997. Why he did not do? Is a million dollar question and he alone can answer this question. The fact remains that due to his inaction (whether deliberate or otherwise), the Revenue has been put to loss to a large extent. It is now for the Department to decide departmentally as to whether any action is called for and if so, what kind of action is permissible under the Service Rules for such lapses and/or inaction against such officer. We leave this matter at this stage for the Department to decide (CIT vs Jagdish Chand Agarwal (Late) 278 ITR 132 (MP)." Strong words, indeed, from the High Court.

There is no way of knowing what action the Department has taken in the light of these observations of the court. Cases of illegality committed by tax officials are legion, and taxpayers face much hardship in the process of seeking remedy.

In yet another case, zealous tax officials pleaded limitation in respect of a claim for refund under Section 239.

The Court came to the rescue of the taxpayer and directed proper consideration of the refund claim after going into the question of the reasons for the delay in making the claim.

(The author is a former Chief Commissioner of Income-Tax.)

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