Ignoring Income Tax Notice? Tax evaders beware

The economic impact of the 2020 coronavirus pandemic in India has been largely disruptive. The lockdown though necessary has led to a disastrous impact on the economy. With an ever-increasing corona virus cases, lockdown was considered as an only solution to flatten the curve. However, the measures which were implemented to avoid a human disaster, have in turn led to the birth of several issues such as unemployment, recession, hindrance to economic growth, financial instability and so on.

The Government of India announced a variety of measures to tackle the situation, from food security and extra funds for healthcare and for the states, to sector related incentives and tax deadline extensions. With the ongoing COVID -19 pandemic a lot of income tax due dates were extended. Most of the countries small businesses which relied on physical availability of customers have had the most hit. Small business revenues have plunged everywhere. Nevertheless, tax evaders have proved to be an exception to this rule, who no matter what the situation persists, find a way to evade tax.

Latest step taken by the IT department to curb tax evasion

To curb the evasion of tax, The Income Tax (IT) department has launched a nationwide campaign to identify people who have deliberately chosen to ignore the notices calling for enquiry and verification of the tax returns, to catch tax evaders and collect due taxes and penalties from them.

IT Department identified a noticeable number of persons who deliberately opted to ignore the notices calling for enquiry and verification of the tax returns. These persons ignored emails, SMSes and even the physical notices in some cases.  

The tax department detected around 6,000 such cases where the individuals had ignored IT notices in an apparent bid to escape from the rigours of law.

Some Instances where taxpayers ignored IT notices

An individual at Rajkot, Gujarat who showed his income for less than Rs 5 lakh a year has the bank accounts with cash deposits of nearly Rs 10 crore and cash withdrawal of Rs 7.5 crore. This person did not respond to six notices, over 10 SMS alerts and other means to contact him. A survey operation was conducted during which the individual was not traceable and the business premises shown in the income tax return was of someone else. His home was traced from the bank but he appears to have absconded. Now, the process to attach his bank account and other assets has been initiated. 

In a case Mumbai, an individual mentioned his income for less than Rs 5 lakh a year but made cash deposits worth Rs 12 crore. Later, pre-survey examination revealed cash deposits were of about Rs 60 crore. During the survey, diaries were impounded as the individual does not maintain books of accounts. Further enquires are underway to pinpoint the source of cash.

Similarly, in yet another case, an individual from Alwar, Rajasthan had deposited Rs 27 crore cash in his bank account in FY 2017-18 and Rs 22 crore in FY 2019-20, although he had shown his income in the range of Rs 3-5 lakh. The individual now under survey is being investigated, adding that the Faceless Assessment Scheme along with improved Form 26AS and pre-filled ITRs is robustly tuned to make a distinction between honest taxpayers and deliberate tax evaders/ fraudsters and the IT department would not hesitate to take required coercive actions against non-responding persons and tax evaders who have misused the trust reposed on them.

Comments by the Revenue Department on ignorance of IT notices

Sources in the revenue department said that it would be difficult for them to avoid outreach of the Income tax department as the technology driven Faceless Assessment Scheme was operationalised.

Unscrupulous tax evaders probably mistook the taxpayer facilitating approach of IT department to mean lack of strictness in follow-up action but the department is quite watchful with non-intrusive means of data analytics and AI and machine learning.

It will not be possible for a dishonest tax evader and fraudsters to escape from the tech-driven tax system. The IT department is committed to honour the honest taxpayers while penalise the tax evaders.

What will happen if taxpayers do not respond to IT notices?

If you do not respond to the tax notices within the time allotted, there can be various implications. Non-compliance of a tax notice would attract penalty of Rs 10,000 and may lead to judgement assessment by the tax officer. In some cases, prosecution up to one year may also apply.

Faceless Assessment Scheme will help find such cases

The Central Government introduced the Faceless Assessment Scheme to provide greater transparency, efficiency and accountability in Income Tax assessments. It was introduced to:

• Eliminate the interface between the Assessing Officer and the assessee during the course of proceedings, to the extent that is technologically feasible
• Optimise the utilisation of resources through the economies of scale and functional specialisation; and
• introduce a team-based determination of arm’s length price with dynamic jurisdiction.

Earlier, in pre-faceless era, may be such tactics of being non-responding possibly could have had some benefits for tax evader but now with the faceless assessment scheme, the Income Tax department collates and matches transactions with the ITRs of taxpayers/entities and selects tax returns for scrutiny that show wide discrepancies in financial transactions versus the income shown in the tax returns.

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