KSCAA Proposes Solutions to High-Pitched Tax Assessments in Karnataka

Introduction

The Karnataka State Chartered Accountants Association (KSCAA) has recently submitted a representation to the Commissioner of Income Tax, CPC Bengaluru, outlining the challenges taxpayers face and proposing viable solutions. While KSCAA acknowledges the government's commendable efforts in increasing tax collections, it has raised concerns regarding high-pitched assessments and recovery measures. This article explores KSCAA's recommendations aimed at streamlining tax assessments, reducing appeals, and enhancing the ease of doing business in Karnataka.

Overview of Current Challenges

KSCAA's representation highlights successful government initiatives like faceless proceedings that aim to reduce harassment and corruption in tax administration. Despite these positive measures, KSCAA notes a growing trend of high-pitched assessments, which contradict the principles of tax-friendliness intended by recent changes.

Specific concerns have emerged regarding recovery measures and penalty processes tied to Statement of Financial Transaction (SFT) reporting. Such assessments often target transactions involving immovable properties, cash deposits, and stock market activities.

Call for Education and Collaboration

Recognizing that taxpayers may lack familiarity with e-proceedings and relevant income tax provisions, KSCAA proposes an educational and collaborative approach. It recommends creating a comprehensive table of resolutions to address common high-pitched additions. This would involve meticulously considering statutory provisions and gathering ample information prior to issuing orders.

Proposed Resolutions:

KSCAA has identified key areas for resolution, as outlined below:

• Stock Market Transactions:

  • Statutory Provisions: Section 29 (Profit and gains from business and profession), Section 48 (Capital gains).
  • Source of Information: Mutual Fund/Stock Exchange.
  • Resolution: Issue notices under Section 133(6) to obtain detailed transaction information while allowing deductions for costs.

• Sale of Property:

  • Statutory Provisions: Section 48 concerning cost of acquisition and improvements.
  • Source of Information: Registrar/Sub-Registrar under the Registration Act, 1908.
  • Resolution: Verify acquisition details and consider market guidance value in assessments.

• Property Purchase and Credit Card Payments:

  • Statutory Provisions: Section 69.
  • Source of Information: Bank statements and documentation.
  • Resolution: Take into account the means of financing when reviewing payments and cash flow.

• Cash Deposits and Loans/Deposits:

  • Statutory Provisions: Section 68/69 and Section 69.
  • Source of Information: Banking records.
  • Resolution: Evaluate comprehensive banking transactions before raising additions.

Reforms for Assessment Procedures

KSCAA advocates for issuing Standard Operating Procedures (SOPs) to guide tax officers during assessments. These SOPs should focus on:

• Dissuading unjustified additions.
• Emphasizing a holistic review process instead of piecemeal assessment based solely on SFT data.

Additionally, KSCAA recommends leveraging Section 133(6) of the Income-tax Act to facilitate the timely collection of necessary information, thereby minimizing reliance on incomplete data.

Impact of High-Pitched Penalties

The automatic imposition of steep penalty orders exacerbates the challenges faced by taxpayers. This can lead to increased recovery demands and additional pressures on administrative operations. KSCAA believes that implementing the proposed adjustments can significantly reduce the volume of appeals filed, thus lessening the strain on both taxpayers and the government's resources.

Conclusion

In summary, KSCAA's representation underscores the importance of a cooperative, educational, and fair approach to tax assessments. By adopting the proposed recommendations, the focus shifts towards enhancing communication, decreasing high-pitched assessments, and streamlining the tax administration processes. The proactive establishment of SOPs and clear directives will contribute to a transparent and efficient tax environment, ultimately fostering a more favorable business landscape in Karnataka.