[Opinion] Curbing Rampant Misuse of Sec 270A(6)(a) | No Penalty for Difference of Opinion

CMA Raji Nathani & CA Gopal Nathani – [2023] 149 taxmann.com 393 (Article)

Indian Income-tax Act, 1961 is the most complex enactment on the earth today. Perhaps this complexity and uncertainty has up scaled the revenues of the department year after year as otherwise the number of taxpayers have almost remained static all these years in the range of 3-4% of the total population. The downfall to this is unrelenting litigation. Currently one out of two cases pronounced by the Courts revolve around nuances reassessment scheme. That means something or the other remains missed out either by the department or the taxpayer. Taxpayers are not routinely educated with the nuances of taxation implications on new forms of transactions. Assessments are stretched and the reassessment are further laid back. Penalties are distanced from assessments indefinitely and initiated mechanically in every case. Circulars are issued routinely only at the time of new incorporation of any section or scheme in the Act. The definition section 2 is amended only when a new tax element is introduced by the Annual Finance Act or to plug a loophole or practice as we call it. Even till today there is no definition of capital expenditure or capital receipt in the Act. With the result the Assessing Officer often would attempt to tax every receipt and disallow most of the expenditure. Definitions that are there are set out inclusively. Between the DTAA and the Act there are several misnomers and undefined terms leading to confusions. What is defined in the treaty is not so clearly defined in the Act and what is so defined in the Act does not go well with latest treaty exchanges. With the result incomes are taxed differently under the Act and the treaty and even at different rates. This scenario has made the tax laws most complex and such anomalies lead to difference in opinion firming up with taxpayers and the department where either party is targeting to optimise its tax revenue and tax expense.

This scenario is not noval, history is witness that there has always existed difference of opinion between the assessee and the department on several subjects such as treatment of a receipt as capital or revenue, treatment of a payment either as capital or revenue, in the natter of exercise of judgement of classification of head of income, in the selection of the method of valuation, in the determination of arm’s length price for an international transaction, in the matter relating to deduction of tax at source and so on so forth (the list is not limited).

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