Amid reports of en masse issue of prosecution notices to small companies, the Central Board of Direct Taxes (CBDT) on Monday clarified that there had been no mass harassment by the Income Tax Department as it had filed only 1,400 prosecutions during the current fiscal for various offences under the Income Tax Act.
It said the Mumbai Income Tax TDS (Tax Deduction at Source) office had issued prosecution show-cause notices only in a limited number of big cases where over Rs 5 lakh of tax was collected as TDS from employees and the same was not deposited with the Income Tax Department in time.
The remarks came after Congress leader and former Finance Minister P. Chidambaram alleged that department's "overzealousness" to prosecute taxpayers for failure to deposit TDS amounted to "tax terrorism".
The CBDT said that some defaulter companies and vested interests were deliberately misleading the media to thwart action against themselves.
To discuss the controversy over the TDS notices, CNBC-TV18 caught up with Dinesh Kanabar, CEO Dhruva Advisors and Sudhir Kapadia, national tax leader at EY.
Dinesh Kanabar said, "When a tax is deducted at source and not paid to the tax office, you are really looking at a situation where revenue is due to the government and somebody has not paid it to the government. Obviously, that is a situation where the government needs to protect its base, it cannot allow a situation where an amount due to it is not paid over to it. So, that is something which we need to recognise."
Sudhir Kapadia said, "In some instances, we are possibly being overzealous because the simple point is if the tax has been deducted at source and there has been a delayed payment for inadvertent reasons, the focus should be on recovering that tax with interest. The earlier law provided that if there is a serious delay of over a year then you launch prosecution proceedings but that was removed and therefore, you have some officers surging ahead and issuing notices even for delays which are as low as 2-3 days, which is going overboard."