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Black money cases: IT dept has 5% success rate

By Subhomoy Bhattacharjee
December 21, 2016 10:02 IST
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In 2014-2015 the I-T department put up 669 cases for prosecution.
The charges stuck in only 34 cases: Just 5%.
It was no exceptional year -- the story broadly follows the script every year.
Subhomoy Bhattacharjee reports.
Illustration: Uttam Ghosh/

Income tax


The Narendra Modi government's bold gamble to net black money through demonetisation of Rs 500 and Rs 1,000 notes requires a robust tax administration.

How much of the old notes will remain unreturned is still up in the air; the windfall for the government might mostly come from the tax on the unexplainable deposits.

There is a strong buzz in the street that the government will put some money into the Jan Dhan accounts out of the black money it mops up.

If that doesn't happen, the entire demonetisation exercise may boomerang on Prime Minister Modi.

This makes the income-tax department a vital cog in the wheel.

The task may be onerous, but the offices of the tax department have a patchwork feel to them.

The one at Jhandewalan in New Delhi, which is the nerve centre of its investigation wings across India, sees officers, staff, lawyers and hangers-on crowd the building on any working day.

Chaos rules here.

In the six weeks since November 8, the department in different parts of the country has commissioned 291 searches and 295 surveys.

'In addition to these, open enquiries have been effected in more than 3,000 cases. As a result of these investigations, approximately Rs 2,600 crore (Rs 26 billion) of undisclosed income has been admitted by the taxpayers,' a finance ministry press release states.

The three steps

By how much will it swell the government's kitty remains to be seen.

There are three elements to any action of search, survey or seizure, collectively lumped together as raids by the income tax department.

The first of these is to make those cheating on tax to pay up.

The second is more important as it makes those who are not tapped but guilty of the same crime uneasy by demonstration and thus more willing to come clean.

The third is the zeal with which the income tax department follows up on the actions by its investigation wing to make the charges bite.

This is the most difficult part of the State's punitive prescription.

Income tax actions are demonstrative, could be embarrassing for those at whose doors the department knocks but can mean little unless they are finally taken to the stage of prosecution.

And this is where the department falls short.

One aspect of the puny rate of successful prosecution is the abysmal staff strength at critical areas where deep knowledge is required. This is different from an overall headcount.

The income tax department, like most other government departments, is loaded with staff at the junior level which adds little value to operations.

For instance, the investigation wing is overworked, with just 20 officers across India.

The numbers would fall short of the demands in a normal year, not to talk of these exacting times.

The lack of human resources has got built up over the years, as a cookie cutter approach to staff strength issues has kept the department understaffed.

A mismatch

Look at the numbers. In 2014-2015, searches were conducted on 545 groups that ferreted out undisclosed income of Rs 10,288.05 crore (Rs 102.88 billion).

In the past two months, the volume of work that has got done is comparable.

The real problems begin thereafter.

Not a single note dug up by the tax officers can be added to the government's revenue receipts in any financial year unless the department can make the charges stick.

"Even though to people outside the charges seem cut and dry, they rarely hold in the courts," says an officer of the prosecution wing.

Again, data from 2014-2015 show the department put up 669 cases for prosecution.

The charges stuck in only 34: Just 5%. It was no exceptional year -- the story broadly follows the script every year.

So what happens with the money?

After a 'raid,' the officer in charge of the operation adds up the cash recovered and deposits it in an escrow account with the department.

The account, termed the Public Deposit, or PD, is operated by an officer of the rank of commissioner. S/he holds the key to the funds till the case under which the tax offender runs through the department.

It is obviously inconceivable that the people or companies against whom tax cases have been made out will not appeal against it.

The appeal to the commissioner (appeals) has to be made within 30 days of the action taken by the department.

Without getting into the details of how such cases run, it is fair to say the cases run upwards of a year.

Till then, the money lying in the PD account cannot be touched by the income tax department.

Not the Rs 10,000 crore plus in 2014-2015 and nor the Rs 2,600 crore (Rs 26 billion) that has come up till now.

Instead, the department resorts to what is known as compounding where those hauled up are let go with a rap on the knuckles.

In 2014-2015, the number was 900 -- the overhang from previous years.

This is the weak link for the income tax department. Without the fear of deterrence, those prosecuted only factor the actions by the department as an annoyance that needs to be handled.

There are two reasons for this state of affairs. The first is the lack of trained manpower.

The other is the lack of big data analytics with the department. Both of them need to change.

But meanwhile can the finance ministry issue any rule to compulsorily take over the cash seized?

It cannot do so since it would run counter to the principles of Indian jurisprudence.

The best case scenario will be to push the cases in the courts at a fast clip.

One of the options would be to revamp the income tax tribunals set up for this purpose many years ago.

Finance Minister Arun Jaitley has strongly expressed his displeasure at the delay in these tribunals.

In January 2017, he needs to get going on this agenda.

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Subhomoy Bhattacharjee New Delhi
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