Review of IT Notices

Recently in the newspapers there was a news item that the income tax department is sending about 1.5 lac notices to the individuals who have invested or spent more than a certain sum of money and encourage them to file income tax returns. I do not how any of these will finally result in success as no data is available to the individuals. But a look of these notices sent on the basis of Annual Information Returns (AIR) for a financial year as old as five to six years does bring out some very interesting aspects and leads one to believe as is it really worth spending so much of money when most of information required is available with them only and it is just waste of paper, printing charges, postage and manpower to handle such a volume not to mentions the handling of replies as and when they are received and then to process them in order to find the discrepancies and then finally to prosecute them only to lose the case either in tribunal or courts.

 The first question is about seeking information on PAN number. The notice mentions the PAN number of the individual against his name in the address and then the first questions is about asking for information about PAN number if any to be provided seems ridiculous as it with you only and you have quoted it and on the basis of which this notice has been issued.

The second question seeking the information is about whether one has filed the income tax return for the particular financial year or not. This information is also available in The IT department data base and it only need to be checked otherwise a notice for non filing the return would have been issued earlier to the individual.

The third question is about providing a copy of the acknowledgement or assessment order, if any. Well all this information is again available in the data base of the individual under his PAN number. Asking this from the individual is sheer waste of paper work, time and energy which can be easily avoided with some honest and good homework rather than troubling the individual tax payer.

Now we come to the fourth and last question which is the most important and totally relevant to the notice. It is asking individual to explain the source of above deposit with evidence and how these have been shown in the tax return.  In the form 26 AS under the AIR subheading the details of these transactions are provided based on which the notice is issued. It also mentions whether the transaction is done in cheque, cash or others. I do not know what others include but it does include the switching over of funds from one scheme to another better scheme by the individuals as it is considered to be a fresh investment. If it is only switching and not fresh then why include it in this AIR return as it would have already come and explained in earlier investment and hence it is only a waste of effort and no useful purpose is served except to increase the paperwork and a demand for more manpower. Most of the senior citizens, after retirement keep switching from one scheme to another in order to maximize their gains and there is no fresh money inflow and hence issuing them notice and increasing their worries at this stage is totally unwarranted and unnecessary. It is not the end and they will keep getting their notice year after year just because of this and putting additional burden on them in terms of expenses in hiring a CA and time. It can be easily avoided if switching over from one to another should be taken away from the AIR entries and it should include only fresh investments or instead of others the term switch is mentioned so as to indicate that it is not fresh investment and relate it to the older investment from which switch was done.

Coming to fresh investments, the IT department does not match the sale of assets to the purchase of new one as their data base is probably geared to pick up fresh investments only and not the investments which have been purchased after sale of some of these old investments or they do not record the sale of investments. It is high time they created a modification to their database to record sale of investments also besides fresh ones and also a sub routine to match these both and only if these do not match or fresh investment is more than sale and income as declared in the IT return then a notice to be issued. This is the case with most of the senior citizens as they keep selling their poor performing assets and investing the same money in good performance assets to maximize their returns. I am sure his will reduce the correspondence by approximately more than 60% , thus entailing a big saving in terms of cost, manpower, postage and time besides providing relief to honest taxpaying citizens.  There is also a requirement to issue fresh guideline by the CBDT in respect of the issue of these notices to senior citizens who are dependent on their pension and profits/interests from such investments. There is also a requirement that the investments should be matched with the investments in the IT return and only if the there is a suspicion of hiding income or fraud or mismatch between the two a notice of seeking information to be issued. There is urgent need to broaden the number of persons filing and declaring the incomes. This is more so in case of businesses, traders and shopkeepers, taxi operators, real estate, etc who avoid giving a receipt or if they issue one then there is no further record of it in their turnover. A move to the cashless payment in this sector will help in reducing these tax evasions and there is a need to do away with the transaction tax imposed by shopkeepers or banks on the use of credit or debit card payments and a need to reduce the upfront charges and recharge fee charged on cash cards and e- wallets in order to popularize them. Making them safer by additional safety features and constantly reviewing and updating them will be also very handy in popularizing them.

In case of senior citizens normally we have all the investments in joint name with a nominee so that after demise some hassles’ are avoided. The AIR entries show them in both husband and wife’s form 26 AS under AIR entries. The AIR entries should be reflected only in the first name or who has paid the money for investments and should not go also in the second name as it is only there for convenience after death.