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Stress on collecting evidence of evasion

Subhomoy Bhattacharjee in New Delhi

The Kelkar panel has asked for the removal of the block assessment power of the income-tax department for dealing with concealed income.

The removal of the most important power in search and seizure cases means more breathing space for corporates.

Section 158 B of the Income-Tax Act allowed the department to make a single assessment of the entire undisclosed income of a company or entity for a block period of six years.

The measure was a powerful shorthand process that enabled the revenue department to deal with cases of concealed income quickly, as a follow through of search and seizure cases.

In its absence, the department will have to revert to Section 148 of the Income-Tax Act and send a notice to the assessee, seeking the reason for recomputing its income, and then proceed, which will be fairly cumbersome.

The task force on direct taxes, in its consultation paper, has suggested that the special procedure for assessment of search cases, which provides for tax at the rate of 60 per cent and exonerates the concealed income detected from interest, penalty and prosecution, should be omitted.

It says when such concealed income is detected and established, it should suffer the full penal consequence of interest, penalty and prosecution.

The task force feels the shorthand procedure adopted by the revenue department does not address the issue of concealed income.

Instead, by regularising such activities, it pursued a short-term goal of maximising revenue only, the panel said, adding that search and seizure operations should be directed towards the collection of evidence that would otherwise not be produced before the tax administration.

For the department, block assessment was a good means to raise revenue collection every year, and also allowed companies to regularise their income. Under Section 148, the arrears will stay as disputed income in the different appellate levels till the cases are resolved.

Recognising the importance of this provision to boost tax collection, in the Union Budget for 2002-03, the finance ministry had tightened the provisions for block assessment, including broadening the definition of undisclosed income, altering depreciation norms and amending the relevant provisions in the Act to enable the Central Board of Direct Taxes to issue directions when it felt necessary to relax the provisions for charging interest.

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