CBDT instructs officers to verify database before pulling up taxpayers

The Central Board of Direct Taxes (CBDT) has instructed Income Tax Assessing Officer (AO) to verify data before making any adverse inference against taxpayers. This instruction has been issued after Allahabad High Court passing severe strictures and proposing to levy exemplary cost of ₹50 lakh in a writ challenging reopening of assessment on wrong facts.

“Before initiating proceedings under Section 148/147 of the Act, any information available on database/portal of Department shall be verified before drawing any adverse inference against the taxpayers,” CBDT said in an internal circular, which has been seen by BusinessLine. Further, it said it is not out of place to mention here that the information made available/data uploaded by the reporting entities may not be fully accurate due to inter alia, error of human nature technical nature, etc.

The instruction also mentioned that if the result of enquiry/information available suggests that the income chargeable to tax has escaped assessment, the AO shall provide an opportunity of being heard to the assessee by issuing a show-cause notice with a time-period of upto 30 days for the reply. The assessee can also be granted personal hearing, if a request is made.  The AO shall mandatorily pass a speaking order in all cases even if show-cause notice has not been recommended.

According to Ved Jain, former President of the Institute of Chartered Accounts in India, these instructions may be good for avoiding reopening in future but doesn’t address the grievances of a large number of taxpayers whose assessments have been reopened recently in July on the basis of incorrect information and by arbitrarily/blindly rejecting the explanation given in response to the show-cause notice and also without giving opportunity of being heard.

Accordingly, “It would have been better had the CBDT while issuing these instructions would have also asked its officers to revisit the notices for reassessment recently issued on receiving such representation from the taxpayer. If CBDT still issues such instructions, it would save unnecessary litigations and avoid strictures likely to be passed in all such cases, as many taxpayers otherwise will be agitating similar issues, as was before Allahabad High Court which led to severe strictures and exemplary cost, before various High Courts,” he said.

On August 11, while disposing petition filed in the matter of SR Cold Storage versus Union of India, a division Bench of Allahabad High Court directed that the Centre “shall not interfere with the quasi judicial function and discharge of statutory duties by the Assessing Officers unless permitted by the Income Tax Act, 1961.” Further, it asked to issue a circular to be issued clarifying the position.

While levying exemplary cost of ₹50 lakh to be deposited in Prime Minister National Relief Fund, it asked for all necessary steps to be taken within one month and a mechanism is developed and is put in place within one month so that assessees may not be harassed and may not suffer on account of own fault of the department in its database/portal.

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