Faulty tax alerts have sparked nationwide anxiety and raised questions over the department’s competence. An apology cannot undo the damage to credibility and trust
A latest news item about the Income Tax (IT) Department urging taxpayers across the country to ignore emails that erroneously raised ‘significant transactions’ under its Advance Tax e Campaign for Assessment Year (AY) 2026-27 bespeaks eloquently on the inept handling of its functionaries. The department’s apology does not in any way detract from the shock and shiver it triggered to the affected recipients of the email. This apart, the IT department is an egregious litigant robbing the much-vaunted claim that the tax regime in vogue is simple to follow sans any hassles to the taxpayers!
In its latest report analysing the Demands for Grants of the Department of Revenue placed in Parliament, the House Panel report roundly rebuked the IT wing that its success rate in appeal cases is less than 15 percent, in the face of avalanche of appeals filed by it and that the assesses were required to deposit 20 per cent of the disputed demand before filing a further appeal which causes “hardship in carrying on business”. Referring to the vexation voiced by the House Panel that the success rate is as low as 12 per cent and 14 percent at the High Court and ITAT levels, it said this indicates that the department is ‘routinely filing legally unsustainable appeals’.
The panel pertinently cited a report of the Comptroller & Auditor General of India (2024) which noted with grave concern that till March 2021 (five years ago!), outstanding demand raised but not realised stood at a humongous 14.41 lakh crores of rupees, of which 10.58 lakh crores of rupees was shown as ‘under dispute’, representing 73 percent of the total. Upbraiding the department plainly, it zeroed in on “instances of exaggerated tax demands raised such as not allowing credit for taxes already paid by the assessee, laying incorrect interest and committing mistakes while giving effect to the appeal orders.” Tellingly the CAG found the figures on outstanding demand continue to include nullified demands and the delay in giving effect to appeal orders resulted in the delayed issue of refunds, which resulted in the IT department issuing refunds for the inflated demands along with interest, besides harassment to the assesses.” How one folly leads to a volley of follies, rendering the gains gleaned in tax revenues eroded to the exchequer is poignantly palpable!
In yet another instance of fishing out further tax loss in a closed case involving senior advocate and former attorney general Mukul Rohatgi’s AY 2020-21 return involving 133 crores of rupees, the ITAT quashed the revisionary order under Sec 263 and restored the completed scrutiny assessment! The tribunal found the principal commissioner lacked objective material to confirm that the completed assessment had a legally sustainable error to cause revenue prejudice. Legal eagles contend that with faceless assessments, internal audit sensitivity over high-value cases, Sec 263 has been used as a hedge, a second institutional glance at completed orders. But the Tribunal has made it amply lucid that revisional power must operate within statutory remit, not investigative overzealousness.
Considering the appetite for the department to seek appeal even if the Tribunal goes against its self-ingrained wisdom, it is regrettable that the provisions of Sec 263 of the IT Act, 1961 were in many cases wielded as though they gave it a charter for persistent fishing expedition to the detriment of the exchequer and to the discomfort of the taxpayers. A painful point to note is that even where the AO has carried out exhaustive enquiries and meticulous investigations into the facts and circumstances of the case particularly when high net worth individuals are involved, these provisions continue to be invoked with metronomic precision, despite the dismal lack of any demonstrable ‘error’ or ‘prejudice to the interests of the Revenue’ in the assessment order. Representative of the auditing community opine that “what was intended as a supervisory jurisdiction has in practice too often degenerated into an exercise in substituting one officer’s subjective view for another’s exalted judgement.”
Stating pointblank that after an enquiry has been made thoroughly and judiciously on every material aspect of the case, the invocation of Sec 263 is not merely unwarranted but also grossly unsustainable in law, professionals contend that such an action only serves to prolong pointless litigation with no mitigation to the litigant (here the department), drain administrative sparse resources and superimpose strains and pains upon the taxpayers with no collateral gains to the department.
A notable illustration from the case overseen by a Chennai-based chartered accountant reveals that his client, an elderly Japanese lady of modest means, had opted to enliven the evening of her existence in Tiruvannamalai a sacred spot associated with the ascetic Ramana Maharishi. Sustaining herself with a meagre pension from the government of Japan, this devout lady made over her only immovable property to another devotee of the ashram. Though the AO arrived at a reasoned conclusion after full and proper enquiries and due application of mind, the department invoked Sec 263, brushing aside the binding precedent of the High Court. They say the relentless surge in statutory amendments and the infinite variety of factual situations arising in real life render the application of precedent a delicate exercise, giving rise to illimitable litigation that has sorely become the hallmark of the IT department, cynics say wryly but weightily.
(G Srinivasan is a senior economic journalist based in New Delhi)
