Taxman to issue 7 lakh letters seeking info on high-value deals

The taxman's black money crackdown is intensifying and CNBC-TV18 learns that the income tax department is set to issue 7 lakh letters seeking information in respect of high-value transactions. 

The department has retrieved information on 90 lakh high-value transactions where PAN has not been quoted from FY10 till now. Within that, 7 lakh high-risk clusters having 14 lakh non-PAN transactions have been identified, sources say. 

Letters have been sent to these parties with a unique identification number directing them to come forth and mention the PAN online without having to personally get in touch with IT authorities. They have been directed to clarify whether the transactions in question have indeed been done by them.

Responses on not quoting PAN on such high-value transactions will be examined and further necessary action will be initiated where no reply is received.Speaking to CNBC-TV18, Dinesh Kanabar, CEO of Dhruva Advisors says it is crucial to upgrade the IT systems here so that such information can be easily tracked. He also feels it is time to shift focus on bringing under the ambit those who avoid filing taxes rather than existing taxpayers who can anyway be scrutinised as and when needed.  Ashvin Parekh of Ashvin Parekh Advisory Services also shared his views. Below is the transcript of Dinesh Kanabar's interview to CNBC-TV18's Areeb Sherwani and Kritika Saxena.Areeb: I would like to understand from you how is it possible for these transactions above Rs 10 lakh to fly under the radar while pan details are compulsory, they have to be disclosed for even Rs 50000?Kanabar: Practically there are transactions where pan numbers are given and details are still asked for. Pan number is not necessary for all types of transactions. So, there may have been transactions where pan number is not provided. However I have seen enquires come from income tax office where despite there being a pan number a questionnaire is sent to a tax payer to say please confirm you have incurred this expenditure and if so how is it reflected in your books of accounts etc.Kritika: How significant would this be in cracking down on the black money issue that the government has been trying? More importantly what are the actions that can be taken because given the fact that if at all there aren’t any replies to those letters that have been sent and given the fact that there hasn’t been yet, that is very likely, I want to understand what is the specific action that can be taken by department then?Kanabar: Couple of thoughts around that, first is that the government is very serious about trying to ensure that the non-taxpayers are brought within the scheme and therefore adequate taxes are paid. Where things seem to be sort of not going in the right direction seems to be that it is really the current tax payers who in any event can always be scrutinized because they are filing their tax returns, they are being asked questions whereas the need of the hour really is to see that the people who have not been filling their tax returns are the ones who are brought within the ambit of tax net.Number two, transactions which are happening, which are for example real estate where registrations happen there are much better mechanisms to see what are those transactions, are those transactions properly accounted, not accounted, are appropriate duties paid and if the government goes on that basis there is an ability for the government certainly to track down on black money and ensure that the scheme is very effective.Areeb: Another aspect in this is the reassessment cases have also been brought under the income tax declaration scheme now. Do you see any improvement at least as far as collections go coming in from there?Kanabar: I would think so. In fact one of the recommendations that has been made to the government is that today under the scheme if a scrutiny notice has been issued under 143(2) which is your regular scrutiny notice then you are not eligible to make a declaration. There is no reason to keep any such things out. I would believe that whether it is a reassessment case, whether it is 143(2), if you are having a scheme you should allow everybody to participate in the scheme and much of this does require may be an amendment to law or whatever else but I think it is necessary because that is what will make the appeal of the scheme universal.Kritika: There are 788 firms that have come into the radar. How tightly can SIT and Enforcement Directorate work together to actually crack down on this issue? I also wanted to understand SIT has historically been focused on direct taxes. These are indirect taxes now coming into the ambit. Is SIT now increasing that ambit and will that help them in cracking down on this issue?Kanabar: If you look at any of the economies where black money is so to say - take US as an example. One of the reasons why there is a huge amount of compliance is that the IT backbone of the country is being used in a manner that for anybody to carry out large number of transactions without being detected is almost an impossibility.In fact GST apart from all the contribution that it would make to the development of GDP etc would also be one of those things which can really effectively help monitor the flow of money and goods and therefore ensure that the black money is curbed as much as one can. I would really believe that if the enforcement directorate, if the IT, if the indirect tax authorities are able to share information and are really able to track the movement of goods and services they would be far more effective. I think IT is a very important tool for the government to ensure non-proliferation of black money.Surabhi: It seems that the government is getting very active, on one hand it is asking the Enforcement Directorate (ED) crack down on possible Foreign Exchange Management Act (FEMA) violators including exporters and on the other hand as my colleague was just explaining perhaps more tax notices going out to those who are doing high value transactions without a Permanent Account Number (PAN) trail. What do you think of these developments? Parekh: Very constructive; right from 2010 onwards it was becoming very clear that with all security transactions that you conduct let us say in marketplace you have to have your PAN card reference. Now high value transactions must have PAN card, so, gradually we are getting into a point where the kind of discipline that is essential to curb the flow of black money in the economy on one side, and these too in some form send out a strong message to the tax payers that your income and movement of your money is getting tracked and that is something that is coming through very clearly.In a cluster of 7 lakh, 14 lakh users without PAN card reference is certainly an alarming kind of a find. Now once let us say these people will be required to provide the bank account numbers and then the investigation into their bank accounts will happen, it will not be very difficult for the department to analyse very clearly the income pattern of people on one side i.e. the receipts in the bank accounts and the kind of expenditure they are making from out of the bank account and their known source of income, if there are high value transactions but yet they have not paid tax for instance, then it is a good reason to ask.Ronojoy: Pan disclosure as of now is mandatory for transactions amounting to anything above Rs 50000. So, in that sense for a transaction as large as Rs 10 lakh, how did it go under the radar? It clearly indicates there are loopholes. Shouldn\\'t the government try and plug those loopholes first?Parekh: It is a good beginning I must say. What I would assume from here is that the overall system seems to be working. Now what may happen is that at least in case of these assessee\\'s or would be assessee\\'s if the department were to issue notices and then if they provide the bank detail and the bank accounts scrutiny shows any irregularities then the department has very concrete evidence available with it.