Investigation wing of Income Tax calls the shots in black money cases

When it comes to dealing with matters under the harsh ‘Black Money’ law, tax authorities in India have a different rule: In many cases, the Investigation Wing of the Income Tax (I-T) Department also carries out the ‘assessment’ — particularly, where search and surveys have been conducted.

The unusual move, which has surprised those suspected of having undisclosed foreign assets, is aimed to quicken tax collection and build a stronger case that would stand the scrutiny of appellate bodies when taxpayers challenge the assessment orders.

The procedure would be similar to the one followed by central investigation agencies like CBI and Enforcement Directorate where the final report is filed by officials who conduct the investigation.

“Black money is highly investigation oriented. This is being done on a pilot basis. There was a thought that assessment of search matters should be done by the investigation wing… Now, we will not be surprised if someone challenges the jurisdiction, complaining that the investigating officer may be biased. Assessees do pick flaws in procedures in defending themselves,” a senior tax official told ET.

“Often there is a gap between the investigation findings and the final outcome. Eventually, the (assessment) orders appear weaker and are unsuccessful in the dispute resolution process,” said the person.

The department has activated an earlier, internal directive of the apex body Central Board of Direct Taxes (CBDT) giving the two I-T Department arms concurrent jurisdiction.

Conflict of Interest
Tax practitioners advising people who have been served notices find this strange. “The department can always argue that if the assessee has nothing to hide what difference does it make whether the assessment order is issued by the investigation wing or the central circle. But there can be a conflict of interest as the person entrusted with investigation is also passing the assessment order,” said a senior chartered accountant.

The Investigation Wing collects intelligence and carries out enquiries and searches to spot tax evasion and undisclosed wealth. Collating the evidence gathered by the investigation wing, the central circles prepare the assessment order. “Investigation officers are often best placed to issue the assessment order, particularly in black money matters which involves extensive probe… People don’t furnish evidence, don’t cooperate, and try to delay the process. The assessing officer may not be fully clued on to the case and has to go over the investigation report again. Some assessees take advantage of this to stall the process,” said the tax official.

The CBDT spokesperson did not comment on the subject.

Industry circles think that the wider involvement of the Investigation Wing would be confined to Black Money cases due to the nature of the statute. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, which was passed in mid-2015 and came into force on April 1, 2016, was brought in to overcome the limitations in the Income tax Act and tax hidden wealth of Indians stashed in tax havens and held as properties and others assets through individual names, closely-held companies, discretionary trusts and foundations. In the first set of assessments which became time-barred on March 31, 2021, some of the assessments have been done by the Investigation Wing. This is likely to continue in subsequent cases. For instance, in an order in May 2021 (relating to two assessees), the deputy director and assistant director investigation have been assigned to exercise the power and perform the function of the assessing officer.

The Black Money Act empowers the tax department to question offshore accounts and assets which may have been opened or acquired decades ago. Under the Act, the year in which information is received by the tax office is the year in which income is deemed to have been earned by the assessee. S-ET

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