Lack of manpower making tax scrutiny of deposits difficult

Hobbled by a staff shortage, the income tax (I-T) department might find it difficult to assess more than 600,000-700,000 cases a year, making it difficult to back the government's suggestion that people depositing Rs2.5 lakh or more in cash in their bank accounts during the ongoing demonetisation drive will come under scrutiny.

On Sunday, the department warned people against depositing unaccounted old currency notes in third-party bank accounts. The tax department said it had decided to slap charges under the newly enforced Benami Transactions Act against violators that carries a penalty, criminal prosecution and a jail term of up to seven years.

The demonetisation drive started on 8 November, with Prime Minister Narendra Modi announcing that the old series Rs500 and Rs1,000 currency notes would not be legal from the next day. Those who possess money in these denominations can get it changed for legal tender from their banks till 31 December. However, those depositing Rs 2.5 lakh or more in the old currency would come under the scanner of the I-T department, the government said.

With a staff crunch, it seems the department would now target only the big fish and let the small fry through. These 600,000-700,000 cases represent only 1 per cent of the total I-T assessees in the country and 0.2 per cent of total PAN card holders.

Business Standard reported that most tax officials  confirmed the manpower crunch will compel the department to only prosecute or penalise misreporting of amounts in crores.

''Given the current manpower of the department, we will be able to focus only on high-potential big-ticket cases and not the small ones. The scrutiny of deposits of Rs2.5 lakh or more being talked about is keeping in mind that the amount is the basic tax-exemption limit,'' said an official.

He added the exception to this could be if a big racket comes to light with a businessman depositing Rs2.5 lakh in 50 accounts or so.

According to the sanctioned strength of the I-T department, there are 7,294 assessment officers up to additional commissioner level, which includes 4,204 I-T officers. The additional commissioners and joint commissioners handle about 30-40 quality cases a year, while the I-T officers assess about 100-150 smaller cases a year.

Tax officials pointed out the increase in volume of cases could impact the quality of assessment.

''Our situation will be like that of the bankers at the moment. There may be an increase in volumes of assessments as the investigation teams are making enquiries at full swing. But these additional cases arising out of demonetisation could add to the existing backlog and only reduce the quality of assessment,'' said another official.

The I-T department has issued hundreds of notices to individuals and firms, seeking sources of funds from those who have deposited large amounts in banks using Rs500 and Rs1,000 currency notes since the demonetisation drive began.

''These are just enquiries being carried out by the investigative wing. They will gather information and ultimately give it to the assessment officers for action. These assessment officers are limited in number,'' said another official.

The move is aimed at checking tax evasion, money laundering and black money circulation. But many tax officials claim it may not be difficult to explain the source of funds in case of bank deposits, since the third quarter (October to December) is the peak demand season.

''Most festivals and marriages take place during the third quarter. It will not be difficult to explain large deposits,'' he said.

He added it would be a challenge for the tax officer to prove that depositors misreported income the previous year. ''Enough evidence will have to be gathered for that. The onus will be on the tax department to prove that depositors misreported.''