Hasan Ali case is a rude wake up call for ED and taxman
Much is made of the unfair treatment meted out to the likes of Vodafone and Shell, but all of these pale in comparison when compared to the Hasan Ali Khan case, the Pune stud-farm owner who, in 2007, was accused by the Enforcement Directorate (ED) of laundering $8 billion and being in cahoots with the likes of arms dealer Adnan Khashoggi. The ED’s proof was, allegedly, a letter from UBS in Zurich which spoke of $8 billion in his accounts—he was jailed for more than four years before he got bail. Based on the ED information and presumably something more, the income tax department said his income between FY02 and FY08 was Rs 1.1 lakh crore and the tax on it Rs 34,000 crore. Despite having Khan in custody, neither the ED nor the taxman made much headway in their investigations and, by 2014, UBS confirmed that Khan had three accounts in the bank in 2001, but that the amounts involved were just $60,700. In February this year, the Income Tax Appellate Tribunal (ITAT) reduced Khan’s tax assessment at a mere Rs 3 crore or 11,000 times less than what was first charged. The alleged money laundering amount also came down to less than $100 million.
While the officers involved, in both the ED and the tax department need to be dismissed, though the Hasan Ali Khan case is extraordinary in its brazenness, it is by no means unique—that is why tax arrears rose from Rs 2.5 lakh crore in FY11 to Rs 6.8 lakh crore in FY15 for direct taxes and from Rs 0.6 lakh crore to Rs s1.5 lakh crore in the case of indirect taxes. While this would be great progress if the money could be recovered, in reality, the taxman is able to recover only a small fraction of this. Between FY12 and FY15, the proportion of ITAT rulings made in appeals filed by the assessee that have gone against the taxman has increased from 36% to 48%. The situation is even more embarrassing in the cases where the taxman files an appeal—in these cases, the proportion that went against the taxman rose from 52% to 58%. All of which suggests that the tax department needs to take a lot more care in such cases. One solution could be to create a separate prosecution cell that independently evaluates each high-profile assessment on its merits —so, instead of a case being dismissed in court, it gets filtered out prior to even making the assessment. Indeed, such cases need to pushed up the level of the Board—CBEC or CBDT—so that a greater application of mind be brought to bear on them. While it is not too clear if the taxman has learned its lessons from the frequent and embarrassing dismissal of its cases in courts—the Tax Administration Reforms Commission’s various reports have many suggestions on how to improve the quality of tax assessments—the good news is that the government has decided that one of the parameters for evaluating officials will be the success rates in making their tax demands stick in various courts.