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Income tax department performing random raids despite having data

The income tax department boasts of having vast amounts of sensitive information on taxpayers, but apparently doesn’t make efficient use of it to check tax evasion, given that it continues to undertake search-and-seizure operations in a rather random and far-from-targeted manner. The tax officials are reluctant to forgo the discretionary powers that they used to enjoy even as it is clear that an intrusive approach yields very little in revenue term.

In the last five years, the undisclosed income admitted as a result of search-and-seizure operations remained below 2% of the total direct tax collections

A Comptroller and Auditor General (CAG) report, tabled in Parliament earlier this month, showed that even as searches and seizures more than doubled in FY17 — the demonetisation year — compared with the average of the previous few years, the ‘undisclosed income admitted’ only improved marginally.

Moreover, such activities not only involve mobilisation of resources that can be used more productively.

These operations often lead to undue harassment of taxpayers. “Unless the department is dealing with a hardened criminal elements involved in tax evasion, these operations in the modern day are not required to this extent,” a tax official said.

Searches and seizures are carried out under Section 132 of the Income Tax Act to unearth undisclosed income or valuables.
The data is surprising because the impression we have is that these operations and recovery from them have increased substantially over the last few years. But the numbers suggest that the department should review the effectiveness of search and seizure operations,” Amit Maheshwari, Managing Partner at Ashok Maheshwary & Associates, said.

Annual Information Return (AIR) of ‘high-value financial transactions’ is required to be furnished under Section 285BA of the Income-tax Act, 1961, by various agencies in respect of ‘specified transactions’ registered or recorded by them during a financial year. While the AIR is a huge storehouse of information for the taxman, the seamless of matching of indirect tax (read GST) and income-tax data is also giving the taxman an edge.

The cost of collection (expenditure incurred by department expressed as percentage of total collection) for the income tax department has come down by half since FY01 largely due to digitisation and higher collections but the expenditure made by the department in ‘search and seizure’ alone is not known. In FY01, the cost of collection was 1.4% which came down to 0.6% in FY18.

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