Finance Bill: Taxmen getting unquestionable power to search, seize is wrong

The Narendra Modi government’s intent to curb the generation of black money by limiting cash transactions to Rs 2 lakh from 1 April and making political funding transparent by restricting high value donations to non-cash modes, is welcome. The measures, proposed in the 2017 Finance Bill, will certainly curb the cash component of black money pile, increase income tax collection as more transactions (done through cheques and electronically) will now be traceable and aid to cleansing process of the political funding to some extent.

Political parties still get to accept cash donations up to Rs 2,000 which remain as a loophole for wrongdoings though. Directionally, these moves are positive. But, looking beyond these positives, there are two serious issues that must be debated in the finance bill, the primary among them being the unquestioned power certain provisions in the Finance Bill proposes to offer to the taxman.

Commuters sit in cars in front of the income tax building during a traffic jam in Kolkata April 2, 2015. U.S. and European investor groups have called for the Indian government to urgently clarify its tax regime for foreigners, following surprise attempts by tax inspectors to claw back money they say is owed on years of previously untaxed gains. REUTERS/Rupak De Chowdhuri - RTR4VVMQ


The Section 132 of the Income Tax Act in the Bill proposes to give the power to the tax official not to disclose the reason for suspicion that may lead to search and seizure on any tax payer, to any authority including the tribunals, with retrospective effect. It reads thus: “in sub-section (1), after the fourth proviso, the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 1962, namely:—“Explanation.––For the removal of doubts, it is hereby declared that the reason to believe, as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal.”

In a meeting of Parliamentary panel, revenue secretary Hasmukh Adhia had reportedly said that reasons will be disclosed to courts even if taxmen won't reveal it to appellate tribunals. But there needs to be clarity on this. As long as the amendments of Section 132 stays in the Finance Bill, this ambiguity on taxmen's role stays. As per this, the tax official can reopen cases many years old and harass even the honest taxpayer.

If this amendment is passed (since the Finance Bill is presented as a Money Bill, this is sure to get passed), the tax authorities become accountable to none, including tribunals, for having a suspicion that someone is hiding illegitimate assets. The officer’s action will not come up for review and his rationale will not be questioned. This will lead to lack of accountability of taxman and an unfriendly relation between the taxpayer and the assessor, which is not the idea the Modi government has been presenting. All along, this government has stressed that it wants a friendly relation with taxpayers and expect willingness from their part to contribute to the nation’s progress, not by force. But, the provision in the Finance Bill goes exactly opposite to this idea.

The second issue is the government’s total disregard to the Supreme Court’s October 2015 interim order (read a report here) ruling Aadhaar should not be made mandatory and the decision should be left to the citizens to use it or not to avail services.

In September, 2016, the Supreme Court had reminded (read a report here) that Aadhaar cannot be mandatory while ruling against a condition insisting students to produce their Aadhaar numbers to avail various scholarships. Then, a bench led by Justice V Gopala Gowda had reminded the government SC’s October 2015 order which said “the Aadhaar card Scheme is purely voluntary and it cannot be made mandatory till the matter is finally decided by this Court one way or the other”. Now that the government has proposed to make Aadhaar mandatory for filing tax returns, what happens to the SC order?

While the SC order on Aadhaar and the government’s move may be a matter of a larger legal debate, the first issue — making the tax official non-accountable to anyone in the system for exercising his powers on any taxpayer citing suspicion — is dangerous. Increasing personal tax collection is necessary but it shouldn’t be done by terrorising the taxpayers and leaving room for the tax officer turn corrupt or act against anyone he wishes to. Accountability is must in the tax department, else it gives him the license to act at will and misuse the power vested in the department, which will not augur well in a democracy. Hence, this provision warrants a review and a wider debate.

Updated Date: Mar 22, 2017 13:10 PM

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