PIYA SINGH [TIMES NEWS NETWORK [ TUESDAY, SEPTEMBER 23, 2003 12:37:20 AM ]

MUMBAI: The finance ministry has informally instructed the income-tax (I-T) department to go slow on search and seizure operations. Searches or raids will now be conducted only if they are expected to yield clinching evidence in a case, or if the tax department does not have any information whatsoever on an assessee and can detect evasion only through this route.

A top income-tax official said, “Although this is not a written instruction, it has been communicated to the investigations department of all income-tax circles. In fact, we have already reduced the number of searches.

Over the last three months, only a handful of searches have been conducted in the metros.’’ While there is much speculation in North Block that the finance ministry’s move has much to do with the impending elections, the official denied it. Instead, he said that the tax-department is putting in place a data bank which will track tax returns of assesses and any major expenditure incurred.

This data will largely eliminate the need to raid assessees, as it will be possible to get a fix on undisclosed income with the data on hand.

Central Board of Direct Taxes (CBDT) chairman P.L. Singh has also recently said that the board is developing a data bank on assessees, which will improve the quality of assessments and revenue and could lead to a reduction in raids. The deadline for this data bank has not been announced.

However, income tax sources said that the department is likely to be fully online by 2005, and it is only then that it will be possible to monitor assessees completely.

“We will conduct searches if necessary even before this data bank is in place. But post-2005, if the department’s computerisation plan is on track, the need for an investigations department to conduct searches may be minimal,’’ said the official.

Tax consultancy Bharat S. Raut partner Sudhir Kapadia said, “Developed economies have a compliance driven regime, not one that is centred around search and seizures. For instance, in the United States, the IRS is dreaded on account of its audits, not its search operations. The tax department should move to a system in which technology is utilised to gather evidence on tax-payers and reprisals are severe in cases of fraud.’’

However, the big challenge for the tax department will be to check evasion in the parallel economy, where it is difficult to track expenditures as well as to determine incomes accurately, he added.