INCOME TAX DEPARTMENT

CADRE REVIEW 2009

Table of Contents

Chapter Page

1 Executive Summary

2 Introduction

2.1 Special Recommendation of the Sixth Central Pay Commission

2.2 History of Cadre Review

2.3 Methodology

2.4 Why is the present review essential

3 Functional Requirements

3.1 Normal growth of work in current field functional fields

3.2 New functions/schemes likely to be undertaken

3.3 Requirement of additional manpower in ASSESSMENT function/divisions

3.4 Requirement of additional manpower in INVESTIGATION function/divisions

3.5 Requirement of additional manpower in APPEAL function/divisions

1. EXECUTIVE SUMMARYThe Sixth Central Pay Commission had mentioned that despite being the largest Group ‘A’ service, IRS did not have a single Secretary level post and that the genuine service aspirations of the members of the service will need to be met. The present cadre structure of IRS does not have a single post in the two highest grades viz., the Apex scale and HAG+ scale. It also does not have any provision for reserves. Apart from this, the cadre does not have the means of providing efficient services to the taxpayers and to effectively plug the revenue leakages. In consonance with the recommendations of the 6th CPC and the DoPT instructions, a Cadre Review Committee was constituted by the CBDT on 13/12/2008. The Committee was mandated to review the cadre of IRS and restructure the Income Tax Department within the framework of Government guidelines to enable and equip the Department to meet the challenges of today and tomorrow.The Committee held wide ranging discussions with the all the stakeholders in the Department. After extensively looking into present and future role of the Department and taking in account the career aspirations viz a viz functional needs and the promotional avenues available in other similarly placed services, the Committee has made following recommendations in brief:-

o Introduction of the Apex Scale and HAG+ Grade in IRS cadre by upgrading the posts of Chief Commissioner of Income Tax in view of the increased responsibility of the Chief Commissioners.

o Administrative Commissioners of Income Tax and equivalent posts to be elevated to HAG (PB-4 plus Grade Pay of Rs. 12,000) by increasing their span of control and to create a structure as per the 6th CPC.

o Some additional posts to be created on functional considerations in other grades.

o Reserve of 760 posts to be created in IRS cadre, as per the DoPT guidelines.

o Ranges to have six assessing officers including 2 ACITs/ DCITs in Company Ranges and 1 ACIT / DCIT in other Ranges.

o All DGsIT in HAG+ of Rs. 75,500 – 80,000 to be redesignated CCITso An additional post of CIT to be created for Budget and expenditure

related work.o A special committee to be constituted for looking into feasibility of

placement of officers in embassies for investment facilitation and Tax advice.

2.0 INTRODUCTION AND BACKGROUNDAs per the Monograph for cadre review published by DOP&T, periodical review of cadre strength of a regularly constituted service is an important cadre management function as it placed a vital role in the smooth functioning of the service and in boosting the cadre prospect and morale of its members. The main highlights of the Monograph on cadre review are as under:-

To restructure a cadre in such a way as to remove the deficiencies existing either at the time of its creation or subsequently so that the cadre structure satisfies the functional, structural and personnel consideration

To plan recruitment in such a way as to avoid future promotional blocks and at the same time prevent gaps building up.

To estimate man-power requirements for next 5 years. This was also recommended in the 1969 report of the study team of ARC.

To examine the extent of different types of reserves that will need to be provided in case no provision exists for reserves.2.0.1 The Present cadre structure of IRS suffers from various anomalies. It has not been able to keep pace with the ever expanding role of the service and is not conducive to any increase in efficiency. It is also unable to meet the genuine career aspirations of the service. In fact, the Sixth Central Pay Commission in para-3.3.35 of the report had noted as under:-

Despite the large cadre strength, the service does not have a single secretary level post encadred in the service. This is clearly anomalous especially because this service is performing the important function of revenue collection. The Commission is aware that as a general policy, no recommendation regarding restructuring of individual cadres is being made. However, considering the fact that other group ‘A’ services with less than 1/10th the strength of Indian Revenue Service have more Secretary level posts, Government will have to seriously examine the issue and resolve the legitimate aspirations of the service.

2.0.2 The IRS Cadre, despite having a cadre strength of 4192, does not have any post in the highest two grades viz. the apex scale of Rs.80000 (fixed) and HAG + of Rs.75500-80000. The cadre does not have any reserve at present. The promotion prospects of the officers in the cadre are highly adverse vis-a-vis other similarly placed Group ‘A’ and All India Services. As such, a cadre review of the service is essential not only to remove the existing anomalies and to stream line the structure but also to implement the recommendations of the Sixth CPC in the correct perspective. 2.0.3 Proposals for Cadre Review were asked vide DOPT OM No. I-1019/6/2008-CRD dated 5/9/2008 in accordance with the provision contained in para 1(ix) of the Government of India, Department of

Expenditure resolution No. 1/1/2008-IC dated 29/8/2008 issued pursuant to the 6th Central Pay Commission recommendations. Vide CBDT memo no HRD/CM/102/01/2008-09 dated 13th December, 2008, a committee on IRS cadre review was formed with the following ‘terms of reference’:-

o To make advance projections of requirements of personnel and to plan recruitment program on a scientific basis

o To bring about rationalization of cadre structure with a view to improving efficiency and morale and enhancing the effectiveness of the service

o There should be synergy and fit between strategic vision, mission, goals and manpower requirement

o Organizational structure should emerge from operational requirements

These terms of reference emerge from the DOPT instructions on the objectives of the cadre review as below1:-

i) estimate future manpower requirements on a scientific basis for a period of 5 years at a time,ii) Plan recruitment in such a way as to avoid future promotional blocks and at the same time prevent gaps building up,iii) so restructure the cadre as to harmonise the functional needs with the legitimate career expectations of its members and thus

iv) to enhance the effectiveness of the service.

2.1 SPECIAL RECOMMENDATIONS OF THE SIXTH CENTRAL PAY COMMISION

Recommendation made by the Sixth CPC regarding IRS in para 3.3.35 of the Report have already been mentioned in para 2.3 supra. In that para the Pay Commission had also mentioned the fact that ratio of Direct Taxes to GDP had gone up from 2.35% to 6% in the last 15 years and that the service was the largest Group ‘A’ service which, despite its large strength was without a single Secretary level post encadred in the service. The position remains unchanged even now. Direct Taxes continue to grow as a percentage of GDP but the position is even worse in the service because it neither has any Secretary level post encadred nor does it have any post in the immediate lower grade of Rs. 75500-80000. This is despite the fact that, as mentioned in para 1.3.25 of the Commission’s Report, the Direct Taxes Revenue are poised to grow from Rs.2,29,272 crores in 2006-07 to Rs.6,35,053 crores in 2011-12. This growth will be further facilitated by a streamlined cadre structure that increases the efficiency and motivates the officers to perform better.

2.2 HISTORY OF CADRE REVIEWSFour cadre reviews have been undertaken so far in the Indian Revenue Service. These covered the periods 1975 to 1979, 1980 to 1982, 1986 to 1988 and 1996 to 2000. Thus there have been only four cadre reviews over a period of four decades. The guidelines of the DOPT require cadre review every five years. Therefore, against 8 cadre reviews required, the IRS has had only 4. Since the last cadre review, the workload of the Income Tax Department has increased manifold. The Revenue collected has increased more than three hundred percent. With globalisation and opening up of the economy, there has been a great increase in the number and complexity of taxation issues relating to cross border transactions and entities. A host of new and emerging areas now require attention on priority. However, the Department finds itself constrained from delivering better results in keeping with the potential of the economy due to lack of manpower and distortion in the cadre structures. At the same time the career prospects of IRS officers have seen deterioration in comparison with their peers in other services. As a result, the morale of the officers has suffered. In view of the above, the present cadre review is not only overdue, but also critical.

2.3 METHODOLOGYDuring the course of deliberations, the Committee examined a large amount of information from multifarious sources. Information was gathered from the following sources:-

Guidelines on Cadre Review provided by the DOPT Recommendations of the Sixth Pay Commission and earlier pay

commissions Structural ratios and growth avenues in other services Meetings with IRS officers Opinion survey of IRS, GP and GP C—Annexure A Meetings with Senior CCsIT Meetings with group B and C officers Cabinet Note on restructuring Earlier cadre review reports Study of systems in similar organisations e.g state revenue appeals

department, advocate general setup International best practice USA, Australia, Philippines etc

Keeping in view the information gathered as above, the present scenario, future projections of revenue, litigation and other growth parameters the requirement of IRS cadre in the next five years has been worked out.

Wherever feasible, growth in workload is recommended to be absorbed through state of the art technology. Data used in this report has been sourced from the various annual reports of the Comptroller and Auditor General of India.

2.4 WHY THE PRESENT REVIEW IS ESSENTIALPolicy initiatives taken by the government and reforms in tax administration have helped the Indian economy to grow by leaps and bounds. Due to streamlining of tax administration, there has been spectacular increase in the direct tax revenue, which has grown from Rs 13,000 crore in 19991-92 to over Rs 3,37,000 crore in 2008-09, representing an increase of more than 21 times in less than 2 decades. The contribution of direct taxes has exceeded that of indirect taxes. The number of tax payers has increased in the same period by approximately 4 ½ times. The cost of collection of direct tax revenue is now one of the lowest in the world at 49 paise for every 100 rupees of tax. The direct tax to GDP ratio has increased from 3.15 % in 2000-01 to 6.67 in 2007-08. The healthy position of tax revenue has played a crucial role in enabling the government to increase funding for development projects of social and economic importance. The increased expenditure on infrastructure, crucial for rapid growth, could be possible only due to very buoyant tax revenues. In fact, direct tax revenue has had a buoyancy of more than 2 over the last decade. In other words, for every 1% growth in GDP, the direct tax revenue has grown by 2%. This can be attributed, inter alia, to better tax administration and restructuring of the Income Tax Department. However, the historical healthy rate of growth in direct tax revenue may not necessarily continue in the future. In order to maintain tax buoyancy and to effectively manage the rapid increase in the workload of the Income Tax Department, certain urgent steps are necessary. A review of the manpower requirement of the department is necessary for :-

Managing assessment workload, Retaining effective supervision and control over the Assessing Officers for

ensuring accountability Providing better tax services particularly in the area of refunds, Reducing the voluminous arrears of tax demand Managing intelligence workload, Widening and deepening of the tax base.

Strategic Vision

2.4.1 The overall vision of the I-T Department can be stated to be the following:

To Promote Compliance with Direct Tax Laws through Professional & Responsive Administration and Standardized Quality Taxpayer Services Encouraging Voluntary Compliance.

Need to Reform Tax Administration

2.4.2 Tax administration has a crucial role in determining the real (or effective) tax system, as opposed to the statutory tax system. Maximizing revenue is only one dimension of the task of tax administration. How the revenue is raised - the effect of revenue-generation effort on equity, its impact on attaining economic welfare, etc - may be equally or more important in some contexts. In fact, the "best" tax administration is simply not that which collects the most revenues; rather it also has to pay adequate attention to facilitating tax compliance and oversee that the efforts of the tax administration results into an outcome commensurate with the objectives of the tax laws.

2.4.3 While tax policy and tax laws create potential for raising tax revenues, the actual amount of taxes flowing into the government treasury, to a large extent, depends on the efficiency and effectiveness of the revenue administration. Improvement in tax administration would seek to secure maximum tax revenue effectively and efficiently given the tax rates. Thus no tax policy can be successful unless there is an efficient tax administration. Weaknesses in tax administration could lead to inadequate tax collections. Experience shows (including those from other countries) that how a tax system is administered affects the revenue yield, its incidence, and its efficiency. A weak tax administration could lead to uncertainty and, may be, shrinkage in budgetary resource envelope, thereby affecting the government’s ability to implement its policies & programmes and provide public services. Thus many countries have undertaken tax reform to adopt their tax systems to reflect changing socio-economic needs & circumstances. So it may not be enough to do only tax policy reforms. It is imperative to simultaneously carry out tax administration reforms so that tax policies could be effectively and efficiently implemented.

2.4.4 The consistent rise in direct tax collections over the last few years is no doubt due to changes in tax policy, notable among them the lowering of tax rates, rationalizing the rate structure and broadening the tax base. But some part of it is also due to effective reforms in tax administration with introduction of technology bringing automaticity in digital functioning, facilitating the speedy allotment of unique taxpayer identification number (PANs), providing facilities for online preparation of tax returns and their filing, electronic clearing of refund payments, launching of Tax Return Preparer Scheme (TRPS), and so on. If we consider that the tax elasticity is 1.4, a back-of-the-envelope calculation would suggest that close to 11 per cent increase in the tax receipts can be attributed to

the growth in the economy; economy growth being about 8 percent per year. Since the inflation during these years has been around 6-7 per cent on an average, the increase in tax receipts due to the efforts of the tax administration can be roughly attributed to be around 8-10 percentage points. Thus, one-third of the recent growth in tax collections can be attributed to the efforts of the tax administration.

2.4.5 The question, therefore, that may be relevant in the above context is whether this has been able to increase the voluntary compliance, which is one of the key goals to achieve for any tax administration? Reply to this may not be easy and would need further exploration; not only in terms of improving voluntary compliance but also in achieving other objectives of the tax administration like equity, transparency, predictability and certainty. Such exploration would also enable us to define the long-term role and strategic vision of the I-T Department . This exploration is particularly important as I-T Department carried out a major restructuring in its administrative set up in 2001, which brought in efficiency and effectiveness in tax administration with unprecedented revenue growth. While the present efforts at reforming the tax administration could continue, it is time to set higher goals and establish methods to achieve them . It is also time to think and explore how the prevalent socio-economic limitations could be overcome to achieve at a macro level more competitive fiscal environment - an environment which encourages investment, risk-taking, entrepreneurship and provides increased jobs; an environment which provides transparency, predictability and certainty with the tax administration; an environment which lowers the cost of compliance; etc. No doubt some of these may require reforms in tax policy, but it may not be enough to do only tax policy reforms. Unless reforms of the administrative dimension of tax, viz, on how the tax policy is actually implemented are not carried out, it may not achieve the desired outcome. Periodic Cadre Reviews are therefore necessary, and can be very effective tools for creating the manpower structures to drive and enable effective tax administrations.

2.4.6 No tax administration can play the policeman for every potential taxpayer. Partly for this reason, tax systems all over the world have over the years tended to move toward a regime in which taxpayers themselves determine and report - in other words, “self-assess”- their tax liability and pay the amounts due without any special prodding from the tax authorities. But such self-assessment will result in high levels of compliance only if accompanied by actions that lend credibility to the sanctions prescribed in the law against non-compliance. Effective tax administration requires establishing an environment in which citizens are induced to comply with tax laws voluntarily, while efficient tax administration requires that this task be performed at minimum cost to the community. This may not be a simple task.

2.4.7 The task is particularly difficult in India with large informal sector, low level of literacy and public morality, etc. Despite such handicaps, recent experience shows that substantial improvement can be achieved with determined effort and an appropriately designed strategy. Facilitating compliance have so far involved improving services to taxpayers by providing them clear instructions, understandable forms, and assistance (such as tax preparers and help-lines) and information as necessary. Simultaneously, monitoring compliance has also been part of the strategy. This monitoring compliance mechanism has been non-obtrusive and intended to promote “voluntary” compliance. These monitoring compliance mechanisms include establishment and maintenance of taxpayer accounts, management information systems covering both ultimate taxpayers and third-party agents, such as banks, i-tax intranet to detect and follow up on non-filers and stop filers, etc. A judicious mix of both these measures - facilitating compliance and monitoring compliance, as well as additional measures to deter non-compliance such as establishing a reasonable risk of detection may be an ideal approach to maximize their effect on compliance.

2.4.8 But voluntary compliance cannot be promoted only by an awareness of rights and expectations of a fair and efficient treatment but also by clear, simple and “user-friendly” administrative systems and procedures. Voluntary compliance is enhanced when it is easier for taxpayers to do so. This may include applying tax laws in a fair, reliable and transparent manner; communicating with the taxpayers about their rights and obligations as well as the available complaint procedures and redress mechanisms; consistently deliver quality information and treat inquiries, requests and appeals from taxpayers in an accurate and timely fashion; provide an accessible and dependable information service on taxpayers rights and obligations with respect to the law; ensure that compliance costs are kept at the minimum level necessary to achieve compliance with the tax laws; use taxpayer information only to the extent permitted by law; etc. The Revenue compliance pyramid model applicable to the tax-administrations in many developed nations is also relevant to the Indian situation.

The Revenue’s Compliance Pyramid would show that the general strategy for augmentation of Revenue in India cannot be very different from this Revenue compliance pyramid borrowed from the Australian Tax Office. We need to encourage those taxpayers who are well informed and willing to comply; educate and support those who are resigned and uninformed; persuade those who are resistant; and show our enforcement might on those who simply refuse to comply.

2.4.9 A major challenge in the above respect of being responsive is to be consistent. Responsiveness translates into being accessible, dependable, accurate and timely (in treatment of requests and appeals). This would require constructing systems and

procedures that are aimed more towards the needs of the taxpayers than those of the tax administration. Examples of this would be to facilitate links with taxpayers through single points of contact to ensure that services are available when and where needed. Efforts to develop enhanced electronic means of communication between taxpayers and the tax administration in this respect would include enabling the electronic submission of returns (e-filing of returns), introducing facilities for electronic payments and on-line access to account balances (Form 26AS). Consistency is improved by having policies and procedures that are transparent and that conform to domestic tax laws and international tax treaties and norms. Consistency would also require ensuring that the rights and obligations of taxpayers, complaint procedures, and redress mechanisms are outlined and communicated through guides, forms, public information, and education programs in a standardised manner across all the offices of the I-T Department.

Implications for Cadre Review

2.4.10 The vision of the I-T Department emphasizing the responsive and professional delivery of quality taxpayer service by strengthening, creating and separating existing structure towards that end. This is intended to promote voluntary compliance, without compromising on the role of enforcement. It needs to be re-emphasized that both sides have equal importance as there is a “feedback effect” between “encouraging voluntary compliance” and “enforcing compliance”. But to achieve that there is need to create new support structures in alignment with people, process, technology and business so that a robust and responsive administrative structure takes shape. But this is not at the cost of strengthening the existing core and support functions with proper emphasis on neglected core areas. One such area which may deserve mention here is the area of research. I-T Department has had a structure for research and data collections, given that it needs to continually explore new and emerging economic activities for devising appropriate law for their inclusion into the tax net. This research and data collections is not only in terms of formulating tax policy but also for creating a tax administration structure (creation of transfer pricing structure is one such example). 2.4.11 The opportunity of cadre review this time is to build on the 2001 cadre restructuring exercise. The restructuring gave an organizational structure which has delivered on the enforcement compliance – more of “front-line” compliance functions, even though, as would be seen from the succeeding portions of this report, the substantial growth in workloads, information and challenges have severely stretched the resources of the Department cadres. The natural requirement therefore would be for this exercise to strengthen both “front-line” functions and “back room” functions, without compromising on the gains so far along with strengthening the corporate support functions. Such exercise would in a way strengthen the palm and the fingers, instead of fingers alone so that the delivery of I-T services to the taxpayers is professional, standardised and of good quality.

2.4.12 In its broad sense, a cadre review encompasses such operational tasks as actual recruitment, training, placement, etc. and attempts to bring about congruence between functional needs and legitimate aspirations of the members of Services. It has been observed that the proportion fixed for promotion and direct recruitment in the various

cadres were not adhered to strictly with the result that interests of the departmental officers in some cadres and direct recruits in some other cadres were affected adversely. In view of the deficiencies in the management of the various cadres, the Administrative Reforms Commission recommended that "for all service advance projection should be made of the requirements of personnel for 5 years at a time" and that these should be followed by mid-term appraisals where circumstances warrant it with a view to making necessary correctives. It was felt that a permanent machinery should be set up for a Cadre-review every three years to make cadre management and review an ongoing exercise so as to gear up for the future challenges.

Restructure the cadre as to harmonize the functional needs with the legitimate career expectations of its members taking into account the relative deprivation vis-a-vis other services

The analyses employed in the review that follows include analysis of structural ratios and threshold analysis.

3.0 FUNCTIONAL REQUIREMENTSDue to streamlining of tax administration, there has been spectacular increase in the direct tax revenue, which has grown from Rs 13,000 crore in 19991-92 to over Rs 3,37,000 crore in 2008-09, representing an increase of more than 21 times in less than 2 decades. The contribution of direct taxes has exceeded that of indirect taxes. The number of tax payers has increased in the same period by approximately 450%. The cost of collection of direct tax revenue is now one of the lowest in the world at 49 paise for every 100 rupees of tax. The direct tax to GDP ratio has increased from 3.15 % in 2000-01 to 6.67 in 2007-08. The healthy position of tax revenue has played a crucial role in enabling the government to increase funding for development projects of social and economic importance. Direct tax revenue has had a buoyancy of more than 2 over the last decade. In other words, for every 1% growth in GDP, the direct tax revenue has grown by 2%. This can be attributed, inter alia, to better tax administration and restructuring of the Income Tax Department. However, the historical healthy rate of growth in direct tax revenue may not necessarily continue in the future. In order to maintain tax buoyancy and to effectively manage the rapid increase in the workload of the Income Tax Department, certain urgent steps are necessary. A review of the manpower requirement of the department is necessary for

Managing assessment workload, Retaining effective supervision and control over the Assessing Officers for

ensuring accountability, Providing better tax services particularly in the area of refunds, Reducing the voluminous arrears of tax demand Managing intelligence workload, Widening and deepening of the tax base. Promoting voluntary compliance.

3.1 Normal Growth of work in the current field formations 3.1.1 The number of assessees has greatly increased whereas the number of Assessing Officers has not increased since 2001. This has adversely affected the ability of the department to properly scrutinize the returns of income. The impact of scrutiny of returns can be measured by the collection of post-assessment tax, as opposed to pre-assessment tax paid by the assessee. Table 1 below shows the position regarding the scrutiny and processing workload of the department as well as the percentage of cases taken up for scrutiny and the percentage of tax collected on regular assessment.

Table- I Assessment Workload, cases selected for scrutiny and Tax on Regular Assessment

1 2 3 4 5 6 7

Year ScrutinyWorkload

ProcessingWorkload

TotalWorkload

% of casesselected

for scrutiny

Tax on RegularAssessment(Rs. crore)

% of Tax onRegular

Assessmentto

Total Tax

00-01 360,141 310,46,331 314,06,472 1.15 8,121 11.89

01-02 217,450 365,08,234 367,25,774 0.59 9,492 13.72

02-03 894,415 369,00,040 377,94,455 2.37 10,745 12.93

03-04 338,275 269,78,376 273,66,651 1.24 16,015 15.24

04-05 439,258 262,98,066 267,37,324 1.64 6,006 4.52

05-06 425,225 328,21,007 332,46,232 1.28 22,122 13.39

06-07 527,005 314,45,896 319,72,901 1.65 30,396 13.20

3.1.2 From the table above, it can be seen that the workload has been steadily increasing and has reached 319.73 lakhs in the year 2006-07 (the latest year for which C&AG figures are available). It can also be seen that from a level of 8.00% scrutiny in 1997-98, the percentage of cases selected for scrutiny has fallen to 1.65 in 2006-07. It has been found that as a result of examination of returns, majority of the additional tax demand raised relates to incorrect/fraudulent claims made by taxpayers. It is apparent from the table that whenever the Department has increased the scrutiny workload, it has been able to collect more regular tax in subsequent years. This is because the assessments are completed in the month of December of March and the tax on the demand raised is collected in the subsequent financial year. Such wrongful claims can be detected only if a sufficiently large proportion of returns is subjected to scrutiny. The present level of scrutiny (1.65%) is too low. If more than 98% of returns are accepted without examination this would encourage a feeling among tax payers that they have a high probability of escaping detection if wrongful claims of deduction are made in

their returns. The figures in column 7 of the Table above shows that there is a decline in the contribution of tax collected on regular assessment in relation to the total tax. While this may indicate an improvement in tax compliance by the assessees, it is also indicative of the fact that the department’s ability to curb leakages of revenue is severely compromised due to manpower constraints. Another disturbing trend is that a large number of taxpayers, who had filed returns in the past have stopped doing so. This anomaly needs to be investigated and such stop filers identified and notices issued to them to bring them back within the tax net. Failure to do so results in very large loss of revenue. In 2006-07 the direct tax revenue was Rs 230,181 crore. On a base of 3.19 crore assessees during this year, the average amount of tax paid by each taxpayer amounted to Rs 72,157/-. Hence the tax lost during the year due to failure of 16,89,901 assessees to file their returns and pay tax would amount to a staggering Rs 12,193.82 crore. It is therefore of utmost importance that speedy action the initiated to redress this situation.

TABLE 2Disposal of Workload

1 2 3 4 5 6 7 8 9

Year ScrutinyWorkload

Disposal during the

year

% Scrutiny Work-load

disposed

ProcessingWorkload

Disposal during the

year

% Processing

Work-load

disposed

TotalWorkload

Disposal during the

year

99-00 553,637 316,223 57.12 268,46,956 140,43,850 52.31 274,01,593 143,60,073

00-01 360,141 225,730 62.68 310,46,331 186,33,110 60.02 314,06,472 88,58,840

01-02 217,450 168,010 77.23 365,08,234 198,58,558 54.67 367,25,774 201,26,568

02-03 894,415 172,410 19.28 369,00,040 337,92,795 91.58 377,94,455 339,65,205

03-04 338,275 197,390 50.83 269,78,376 213,80,490 79.25 273,66,651 215,77,880

04-05 439,258 210,866 48.00 262,98,066 204,92,965 77.93 267,37,324 207,03,831

05-06 425,225 230,698 54.25 328,21,007 226,49,070 69.00 332,46,232 228,79,768

06-07 527,005 241,983 45.92 314,45,896 209,98,629 66.78 319,72,901 212,40,612

3.1.3 Table-2 shows the position regarding disposal of workload. It is apparent that the overall rate of disposal (scrutiny and processing together) fell from 1996-1997 to 1999-2000, but then improved from 2000-2001 to 2002-2003. Thereafter there has been a steady decline in the rate of disposal. This is particularly marked in the case of scrutiny assessments, where even 50% of the workload could not be disposed off during the year. This is a very unhealthy trend and calls for immediate action, since timely completion of assessment and collection of taxes is vital for providing funds for the government.

3.1.4 In any tax administration it is inevitable that the total quantum of taxes as felt to be due by the tax authorities may not be fully collected during the year due to a variety of reasons. This may be due to the fact that certain tax demands are disputed by the assessee and therefore not paid till disposal of appeals, tax claimed to have been paid pending verification, demand stayed by the courts and other authorities. Taxes remaining uncollected adversely effect the fiscal position of government and therefore full efforts must be made to ensure prompt collection of all taxes due.

3.1.5 At present (as on 31.03.2008) there are 336,62,802 registered tax payers in the country which is roughly 3% of the population. A number of factors together have the effect of keeping large sections of the population out of the tax net. Some of these factors are non-taxability of agricultural income in a primarily agrarian economy, demographic profile of the population, high exemption limit relative to per capita income, etc. However, even allowing for such factors, there is considerable scope for further widening of the tax base. If the tax base is widened, it follows that the revenue of the government would be enhanced while at the same time the burden on each taxpayer can be reduced.

3.1.6 Studies have shown that there exists a gap between the income reported in the I.T. returns and the national income estimates. For example, a study conducted by the National Council for Applied Economic Research (NCAER) examined the income distribution of households in India during 1995-1996, 2001-2002 and 2005-2006. A comparison of NCAER figures with the I.T. Department statistics reveals the following:

Income Range (in Rs )

Financial Year 2001-02 Financial Year 2005-06

NCAER (No. of households)

Income tax (No. of individuals and

HUF)

NCAER (No. of households)

Income tax (No. of individuals and

HUF)

90,000 to 2 lakhs

41,262 24,160(58.55%)

53,276 25744(48.32%)

2 lakhs to 5 lakhs

9,034 1,603(17.74%)

13,183 1,761(13.36%)

5 lakhs to 10 lakhs

1,712 463(27.04%)

3,212 658(20.49)

More then 10 lakhs

807 72(8.92%)

1,731 144(8.32%)

Total 52,815 26,298(49.79%)

71,402 28,307(39.65%)

3.1.7 Although the comparison cannot strictly be made between households and individuals, considering the fact that even a household having income upto Rs 5 lakhs may not have any income-tax liability, if the income is earned by two or three members such that they are each below the taxable limit. However, this is not likely to the case in respect of households having income of Rs 5 lakhs or more. Yet it can be seen that the department’s ability to capture the taxable entities has declined from 49.79% in 2001-02 to 39.65% in 2005-06.3.1.8 Another study conducted by the Indira Gandhi Institute of Development Research has estimated the black money in the country at 18.21%. This implies that incomes of the order of Rs 8,58,264 crore are not accounted for, and consequently there is a tax gap of approximately Rs 1,71,653 crore (assuming taxation at the median rate of 20%). The potential tax loss thus amounts to more than 50% of the tax actually collected during 2007-2008. Department’s ability to curb tax evasion is positively correlated to the manpower available for investigation, intelligence, assessment, etc.3.2 New functions / Schemes likely to be undertaken.In addition to the normal assessment work, the department is faced with the challenge of tackling complex issues relating to taxation of e-commerce, mergers and acquisitions, special economic zones, international movement of capital, off-shore transactions, etc. As a result, the pressure on the available manpower is enormous. It is evident that with the existing manpower it is becoming impossible to handle the workload. The number of officers available for assessment has not kept pace with the growth in the number of assessees, revenue and complexity of tasks.

3.3 Requirement of additional manpower in ASSESSMENT Function/Division

3.3.1 Circles and Wards are manned by Assessing Officers at the level of Assistant Commissioner/Deputy Commissioner in Circles and ITOs in Wards. Assessment of correct income of tax payers is the primary function of the Assessing Officer. Besides assessment function, the Assessing Officers are also charged with responsibilities in various other areas as well. This includes recovery of tax demand raised consequent to assessment made, processing of returns in all cases even where not selected for scrutiny, dealing with audit matters and other commitments made by the Department to the taxpayers in its Citizen’s Charter etc. In addition, a large amount of judicial work has also to be performed by the Assessing Officer. Appeal effects have to be given to the orders passed by the Commissioner (Appeals) and the ITAT. A scrutiny report of such appellate orders is also prepared for enabling the higher authorities to take a view as to whether

further appeal is to be filed against the appellate orders. This requires deep study of the file and the legal and factual issues involved. In case appeal is to be filed, completion of various procedural requirements must be ensured and Departmental Standing Counsel properly briefed. Apart from this, the AOs must participate in surveys and searches, which take up a lot of time. Further, work relating to Fringe Benefits Tax (FBT) returns and assessments, Securities Transaction Tax (STT), Parliament Questions, MIS reporting, etc. also require attention.Workload Management Approach3.3.2 The more time is available to the AO for examining the returns, books of accounts and other documents relating to a case picked up for scrutiny, the more accurate assessment of taxable income would be possible. It is therefore internationally accepted that the Assessing Officer must not be burdened with un-manageably large number of assessments, as this proves to be counterproductive since proper scrutiny cannot take place due to paucity of time. About 150 assessments in a year have been felt to be the maximum an AO can be expected to handle without losing control over the entire gamut of functions he is required to perform. Table below shows the work load of scrutiny assessments since 2001-2002 to the present, and the projection for the year 2013-2014:

Year No. of assessees

No. of AO

Assessee per AO

Scrutiny Workload

Scrutiny workload per

AO

2001-02 262,26,000 3,616 7,253 217,450 55

2007-08 336,62,802 3750 8977 527,005# 141

2013-14 430,88,640 3750 11490 861,773* 230

3.3.3 From the table above it can be seen that the Department is constrained to keep the percentage of scrutiny assessment/audit at a very low percentage at 1.65% so as to maintain the per Assessing Officer figure of scrutiny assessment below 150. This is, however, at the cost of reduction of ‘tax gap’ in respect of a large number of taxpayers. The Government insists that a minimum scrutiny percentage of 2% should be maintained by CBDT to optimize collection of regular taxes and to reduce tax gap in a large number of cases. While maintaining scrutiny at 2% has been difficult even at the level of present workload, the same is likely to become much worse in the next 5 years, given that the number of taxpayers is expected to grow even further.3.3.4 With increase in computerization and the benefits of technology induction, the future rate of growth, both in number of tax payers and revenue would be higher than in the past. Even assuming the historical growth rate between 2001-2002 to 2007-2008, the number of taxpayers is expected to grow 1.28 times to

430,88,640 in 2013-2014. Similarly, revenue has grown 4.55 times from Rs 69,198 crore in 2001-2002 to Rs 3,14,468 crore in 2007-2008. Similar rate of growth can yield revenue of Rs 14,30,829 crore in 2013-2014. If the number of Assessing Officers remains unchanged, the assessees per AO would increase to 11490 and the scrutiny workload would increase to 230. No department can function under such punishing workload. The efficiency and effectiveness of the department is bound to suffer, and certain proportion of income would inevitably escape detection/assessment. It is imperative that the number of AOs be augmented. Based on the norm of 150 scrutiny assessments per AO the additional requirement of AOs in 2013-14 would be as follows:

No. of scrutiny assessment for disposal 861,773

No. of Assessing Officers 3750

No. of Assessing Officers required for disposing scrutiny workload @ 150 assessments per AO

5,745

Additional requirement of (a) AO of which,

1995

ACIT/DCIT (20%)ITO (80%)

3991596

(b) Ranges @5 AO/Range 399

(c) Commissionerates @ 3 Ranges/ Commissionerate

133

(d) CCIT @ average 2.6 Commissionerates per CC 54

3.3.5 In consonance with the prescribed norms, creation of following additional posts of support staff would be required:-

S.No. POST No. of addl. posts required

1 Inspector 3724

2 STAs/TAs 7714

3 Stenos/DEOs 1948

Revenue Collection Approach3.3.6 If projections are made on the basis of revenue growth, then, the revenue from direct taxes has grown as under:-

(in Rs. 000 crores)

Financial Years 2000-01 2001-02 2002-03 2003-04 2004-05 2005-062006-07 2007-08 2008-09

Total Direct Taxes 68.3 69.2 83.2 105.1 132.7 165.2 230.2 314.4 337.00

Even if some of the growth in Direct tax collection is attributable to growth in the economy and the price index as well as increased efficiency, growth of 460% in direct taxes collection since the time of last cadre review should mandate at least doubling of the existing strength. This will lead to an increase of 4192 officers in the cadre strength of IRS alone and an overall increase of approximately 61000 officers and staff in the Income Tax Department as a whole.3.3.7 In another exercise, requirement of additional manpower on the basis of PANs allotted was also worked out. Growth chart of PAN allottees is as follows:-IT is observed that total number of PAN allottees has gone up to 700 lakhs in the year 2008-09. All these PAN allottees are potential taxpayers and a majority of these allottees will actually start paying tax in the next few years. If the number of PAN allottees is deemed to be a precursor to their conversion to taxpayers in next 3 to 5 years, then it will be safe to assume that number of taxpayers in the year 2013-14 would have increased to 700.37 lakhs. As per the prescribed norms in the last cadre review wherein one post of administrative CIT was created for every one lakh taxpayers, 700 posts of administrative CITs will be required in the year 2013-14. Thus, an additional 448 posts of administrative CITs would need to be created under this model. In accordance with the prescribed staff strength for a model Commissionerate, this will also result in creation of 1344 additional posts of Range heads in the grade of Additional/Joint CIT, creation of 6720 additional posts of Assessing Officers in the grade of DCIT/ACIT/ITO along with creation of 12544 additional posts of ITIs, 25984 additional posts of TAs/STAs and 6563 additional posts of Stenographers /DEOs.3.3.8 In each of the three scenario, the number of additional manpower required to handle the increased workload and cater to the expected level of taxpayer services is very large. The following table summarises the number of additional posts required at different level of IRS officers, Group B officers and support staff as well as the financial implication (per annum) involved with these additional posts:-

Additional manpower requirement under three different models

Post Scrutiny Workload Model Revenue Collection Model

Expected taxpayer model

No. of additional Posts

Financial Implication

No. of additional Posts

Financial Implication

No. of additional Posts

Financial Implication

CCIT 54 116 172 To be provided*

CIT 133 631 448

Addl/Jt CIT

399 1253 1344

DCIT/ACIT 399 2092 1344

ITO 1596 4448 5376

ITI 3724 9793 12544

SrTA/TA 7714 17500 25984

Steno 1948 5850 6563

Total

The Proposal3.3.7 The three models discussed above were resulting in an inordinate increase in the cadre strength on the assessment side. Such an increase would place a huge financial burden on the Government. The Committee has, however, followed a policy of not creating additional posts in the higher grades. Instead, posts in the higher supervisory grades have been given additional responsibilities and suitably upgraded. This process also automatically addresses the existing anomaly in the IRS cadre where no posts exist in the highest two grades of HAG+ and the Apex Scale. Additional posts have only been created in the grade of CIT and lower grades. While working out the revised cadre strength, the span of control of Range heads has been increased by giving six Assessing Officers to a Range as against the present five and the number of taxpayers per Range has been increased to 48900 as against 33000 at the time of last restructuring. This will result in increased work for all the higher posts as well since the existing norms of 3 Ranges to a Commissionerate are not being diluted despite a substantial increase in the number of taxpayers which. The span of control of administrative Commissioners will increase from 21 Group A or B assessing officers/supervisors to 24 Group A or B assessing officers/supervisors. The

number of taxpayers per administrative Commissioner will increase from 100,000 to 146,724 at the present and to 188,200 in 2011-12. If the earlier formula of 1 CIT per one lakh taxpayers had been followed, it would have entailed doubling of the existing number of administrative CIT to 504. 3.3.8 Jurisdiction of CCsIT is also being substantially enhanced with 3.03 administrative Commissionerate as against 2.6 at present and 3.03 Commissioner (Appeals), as against 2.6 at present. The Chief Commissioner will now be responsible for 442,300 taxpayers as against 300,000 taxpayers earlier, which will further go upto 569,600 taxpayers in 2011-12.3.3.9 Cadre Controlling CCsIT – In addition to the sphere of control of 6.06 CsIT and 72 group A and B assessing officers/supervisors as proposed for other CCsIT, the Cadre Controlling CCsIT (Principal CCsIT) has also been made responsible for CIT(TDS) (supervising 21 Group A and B assessing officers/supervisors); CIT(Audit) (strength of ___ Group A and B officers); CIT (Helpline); CIT (Hqrs), CIT(Judicial) and CIT (CO). The Cadre Controlling Chief Commissioner (Principal Chief Commissioner, as proposed) is also responsible for cadre management of all Group B, C and D posts in the entire region.3.3.10 Further, CCIT (CCAs) /(Principal CCsIT) have control over the entire cadre, spread usually over more than one state. For example, the CCIT (CCA) (Principal CCsIT) / of North-West Region would have oversight and administrative span of control over five states, i.e., Punjab, Haryana, Himachal, UT of Chandigarh and J&K. The same geographical area will have five DGPs from the Police and five PCCFs from Forest Service. Similar will be the case in the North-East Region. In fact, barring two regions, in every other region, the CCIT. (CCA) /(Principal CCsIT)’s span of control would extend beyond one State. Similar would be the case with DGIT (Inv.).The CCIT (CCA)/ (Principal CCsIT) would oversee vigilance, establishment, finance, deployment of manpower, staff unions interface and other matters relating to administrative and financial control in respect of the cadre for the entire region. The CCIT (CCA)/ (Principal CCsIT) would also coordinate for their region with the CBDT as the CBDT very often interacts with the field formations only through CCA’s. Hence, the role and functions of the Principal (CCA) and DGITs would be functionally distinct and separate from those of other CCITs, involving higher and expanded levels of responsibility as already discussed in the foregoing paragraphs. Creation of these additional posts will need to be done in a staggered manner so that all this manpower is in position by 2013-14. The revised number of posts for assessment division is accordingly recommended as under:-

Post Pay Scale Additional Posts to be created

Principal CCIT 80000 fixed 18 posts to be created by up-gradation of 18 existing posts of CCsIT.

CCIT 75500-80000 64 posts to be created by up-

gradation of 64 existing posts of CCsIT.

Sr. CIT PB-4 + Rs. 12000 grade pay

55 additional posts to be created (this will be in addition to 252 existing posts of CsIT being upgraded to Sr. CsIT)

Addl.CIT/Jt. CIT PB-4+ Rs. 8700 grade pay/ PB-3 + Rs. 7600 grade pay

165 additional posts to be created

DCIT/ACIT PB-3 + Rs. 6600 grade pay/ PB-3 + Rs. 5400 grade pay

403* additional posts to be created

ITOs PB-3 + Rs. 5400 grade pay/ PB-2 + Rs. 4800 grade pay

1341 additional posts to be created

ITI PB-2 + Rs. 4200 grade pay

1540 additional posts to be created

Sr.TA/TA PB-2 + Rs. 4200 grade pay

3190 additional posts to be created

Stenographers/DEOs PB-1 + Rs. 2400 grade pay/ PB-1 + Rs. 2800 grade pay/ PB-2 + Rs. 4200 grade pay

1246 additional posts to be created

*Every company range to have 2 DCIT/ACIT and 4 ITO and all other ranges to have 1 DCIT/ACIT and 5 ITOs

3.4 Requirement of additional manpower in INVESTIGATION Function/Division

3.4.1 The Investigation Wing is entrusted with the task of combating tax evasion and unearthing concealment of income and wealth with the ultimate goal of curbing the menace of black economy. The mandate of the Investigation Wing is to gather intelligence and thereafter carry out search and seizure operations, surveys and enquiries for unraveling tax evasion. In addition, the activities of the Investigation Wing encompass-

Processing of TEPs - TEPs are a data mine of information. They are a great source of search and surveys. Effective utilization of the information

contained therein can lead to huge revenue realization, as also buttress the Investigation Wing’s deterrent image. However, shortages of manpower in the Investigation Wing have led to underutilization of this source of information. With an increase in public awareness, information. Presently, about 8000 TEPs are pending for disposal. Situation is that TEPs are routinely forwarded to the units, where they languish for years altogether for want of attention.

Pre-search Investigation- Processing of any search case involves reconnaissance work before the actual operation. It is this information which is a benchmark for the success of the search operation. The entire information about the group to be searched needs to be collected in advance and processed for the actual operation.

Post search Investigation- With the rise in economic activities and ease of transactions through technology, the financial transactions encompass intricate networking, and transcend international borders. Thus, post search investigations involve a lot of pooling of resources- both human and material- as well as in depth knowledge of the contemporary technical knowledge and modes of transactions so as to get to the bottom of the labyrinthine processes and to unravel the tax evasion. Thus, enquiry work involves a lot of time. The Income Tax Act has mandated 60 days’ time for completion of appraisal report. But, this time is not sufficient to complete the enquiries, given the manpower already existing in the setup. Thus, the quality of appraisal reports is affected.

Referred investigation from other agencies- There are many agencies which aid the intelligence gathering endeavour of the Investigation Wing. These include- CBI, State EOW, State CID, Customs & Central Excise, REIC, CEIB, PMLA, BCTT, FIU etc. Cases referred by these agencies are taken up for investigation in the Wing.

Consequential searches Other miscellaneous work, like Assistance to Central Circle/Assessment

Wing specifically when the findings of the Appraisal report are at variance with the finding of the Assessing Officer as per the procedure laid down in guidelines for assessments in search & seizure cases mentioned in the letter dated 22/12/2006, F.No 286/161/2006-IT(Inv.II) of the CBDT, New Delhi. However, shortages of manpower make it difficult for the Investigation Wing to work to its potential. In addition, some areas have vast territorial jurisdiction, which render the enquiry work difficult. There has been increase in sensitive cases. Overall, the potential and volume of work in the Investigation Wing has increased manifold. but, the resources, in terms of manpower, has not kept pace, leading to denting of the deterrent mechanism that the Wing encompasses.

The changing global economic scenario and the ensuing challenges call for strengthening of Investigation Wing in terms of manpower and technical capability. it is imperative that the Investigation Wing is augmented with sufficient manpower and technical capability to marshal its resources towards effective functioning. In terms of technical capability, and manpower resources the following challenges present themselves before the Department.

o Increase in magnitude of black money Indira Gandhi Institute of Development Research estimates that India’s black money is around 18.21 % of GDP. Real estate deals are taken by many to estimate the black economy in India. As is well known, the 60-40 ratio or 50-50 ratio is common knowledge in any real estate transaction, which is indicative of the thriving black economy in India. . With economic liberalisation, a low interest regime, both in the lending and saving sector is now in existence; because of this bank deposits are no longer an attractive savings instrument. Money now has tendency to move towards real estate and capital markets because of the phenomenal gains that both sectors had been fetching in the pre-recession era. More investments are now flowing into real estate because these investments are simpler and less complicated than the capital markets.Most developed countries do not have much of black money. Their system, therefore, could easily adopt the computers, e-transactions, e cards. In India, large number of transactions are done in cash, which have a high element of black money. With the current onslaught of consumerism, investment in gold, property, consumable goods is on the rise. Many of these transactions are financed by black money. Another area which has been recently noticed as an influx of black money is Insurance policies, where huge amounts, in cash, are paid in premiums to secure insurance cover. Influx of black money was also seen in the buying of Indira Vikas Patras, which have now been discontinued. Lack of an effective monitoring system encourages such transactions, thus adding to the volume of black money activity. The existence of black money is injurious not just for the tax revenues. It distorts the systematic resource allocation process and upsets the accuracy of economic forecasts. Good economic management requires precise and reliable data.

o Hawala transactions on the rise- from simple to complexInterpol places the size of Hawala in India at possibly 40 percent of the country's gross domestic product. In 1998, estimates place the amount of money in the country's Hawala system at $680 billion, roughly the size of Canada's entire economy. In the most basic variant of the hawala system, money is transferred via a network of hawala brokers, or hawaladars. A customer approaches a hawala broker in one city and gives a sum of money to be transferred to a recipient in another, usually foreign, city. The hawala broker calls another hawala broker in

the recipient's city, gives disposition instructions of the funds (usually minus a small commission), and promises to settle the debt at a later date.The unique feature of the system is that no promissory instruments are exchanged between the hawala brokers; the transaction takes place entirely on the honor system. As the system does not depend on the legal enforceability of claims, it can operate even in the absence of a legal and juridical environment. No records are produced of individual transactions; only a running tally of the amount owed by one broker to another is kept. Settlements of debts between hawala brokers can take a variety of forms, and need not take the form of direct cash transactions. Hawala is attractive to customers because it provides a fast and convenient transfer of funds, usually with a far lower commission than that charged by banks. Unfortunately, Hawala has also been utilised as a money laundering and terrorist financing system. In India, it is not uncommon to use the import and export of goods to settle hawala transactions. Jewellery, gold and other precious metals, among other things, serve as an ideal disguise for the settlement of hawala transactions through over- or under-invoicing. Hawala transactions in India are prohibited by the Foreign Exchange Management Act, 1999 (FEMA).India established the Financial Intelligence Unit, India (FIU-IND www.fiuindia.gov.in) on 18 November 2004, which reports directly to the Economic Intelligence Council headed by the Minister of Finance, Government of India. The FIU-IND receives and analyses cash and suspicious transaction reports and disseminates valuable financial information to intelligence and enforcement agencies and regulatory authorities in India and foreign financial intelligence units. It also exchanges information with foreign financial intelligence units in respect of suspicious transactions. However, in spite of the vigilance machinery in place, hawala transactions are on the rise, and are being transformed from simple to complex ones. - New areas of economic activity – SEZs, Services, Infrastructure Development, High economic growth, High volume projects, Power projectsModern tax structures are complex, and the complexity grows with economic development. The economy of India is the twelfth largest in the world by market exchange rates and the fourth largest in the world by GDP, measured on purchasing power parity (PPP) basis. In the late 2000s, India's growth has averaged 7.5% a year, India currently accounts for 1.5% of World trade as of 2007 according to the WTO. With the development in economy, there has been a spurt in the growth of infrastructure development, services, SEZs, power and other such areas. The agricultural sector output accounts for 17% of GDP; the service and industrial sectors make up 54% and 29% respectively. The opening up of the economy has fostered high volume projects, many of them foreign funded, being set up in the country. However, due to limited resources and manpower at the disposal of the Department, and overloading of the existing manpower, the

monitoring of these huge economic activities is very nominal or ineffective, leading to various instances coming to light involving whopping amount of tax evasion by the units operating in these areas. As such, the level of evasion may be expected to vary with the level of economic development, the tax structure itself, and the idiosyncratic values and behavior of taxpayers.

New towns and cities developing – investments flowing into new geographical areas

Growth in economy has witnessed new areas coming up as pockets of development. Saturation of the metros, and better infrastructure has enabled fund flows to new destinations, leading to rapid growth of new cities and towns, where such fund flows are concentrated. However, it is seen that the presence of the Department is either too miniscule or non existent in such areas of new economic activities. Thus, there is a pressing need to rationalize the spatial spread of the Department, and especially of the Investigation Wing, to curb the evasionary tactics being adopted in such areas, as also for maximize revenue collection from these pockets of development. For instance, Bangalore is one of the fastest growing metropolises in the world, and the fastest growing economic hub of the country during the last decade. However, the sanctioned strength of the Investigation wing here does not match with its potential. The AIU is also defunct for want of manpower. Similarly, Panaji in Goa is humming with economic activity in respect of tourism, mining, shipping, logistics support, transport support and manufacturing activities. But, the Investigation Wing is almost non existent. New methods of tax evasion – sheltering in cooperatives, NGOs, banking channelsCooperative societies, NGOs, banking channels have become havens of tax evasion, and moneylaundering acts by scrupulous elements. Huge funds are channelized through these conduits, in an organized manner. NGOs are especially being used to park funds of dubious nature for the advancement of illegal activities. From time to time, information in respect of NGOs, identified for suspicious transactions, is being shared between the intelligence machinery for careful monitoring and vigilance. Similarly, cooperatives and banking channels are being adamantly used to channelize the black money. The modus operandi involves routing of money through a number of bank accounts, so as to deceive the vigilance mechanisms. Many a times, the accounts of the parties are not disclosed to the tax authorities, and huge money transactions take place under cover of these cooperatives and banking channels. Today, terrorism finance through the charitable organizations is a matter of concern and ways are being devised to stop the abuse. The charitable sector has been identified by the counter-terrorism authorities and the international community as one of the primary means that terrorist organizations raise, move and use funds. In fact, 2 multi national charities based in Pakistan

were involved in fundraising and supporting the terrorist organization Laskar-e-Taiyyaba. The entire South Asian region is at high risk of terrorist abuse of NGOs. The Financial Action Task Force (FATF)- the anti-moneylaundering and counter-terrorism finance (AML/CFT) international standard body, has issued an international standard on combating terrorism abuse of NPOs, also known as Special Recommendation VIII (SRVIII). This standard calls for governments to develop and implement a comprehensive framework to effectively combat this terrorist threat. This approach begins with the need for governments to conduct a domestic NPO sector review and a terrorist finance threat assessment for their NPO sector, followed by development and implementation of a 4-prong counter- terrorism approach that includes- oversight, outreach, enforcement actions and international engagement to counter this challenging terrorist threat.The Administrative Reforms Commission, in its report entitled ‘Social Capital’ has enumerated the difficulties in the existing income tax provisions governing the NPOs. The report can provide significant material for assessing the Department’s role in implementation the the FATF SRVIII. Tax evasions through corporate fraud, public corruption, money laundering. The tendency to hide transactions will increase/ has increased

Tax evasion is on the rise. There may be various factors leading to the increase in tax evasion. For instance,- it is very difficult to impose widespread and harsh penalties if evasion is widespread, and if some of the major offenders are the wealthiest citizens and the biggest businesses. Such actions are inconsistent with the desire to stay in office for the longest possible time. Evasion could be eliminated or substantially reduced only if corruption in

the tax administration were eliminated or substantially reduced, which would be expensive in monetary and perhaps political terms.

Tax administration is costly, and the efficiency of assessment, collection, and audit depends on the amounts spent for this function. It is difficult to convince the public to pay substantially higher taxes so they can be more effectively pursued by tax collectors.

revenue maximization may not be the onlygoal. There are a number of other objectives that authorities may be pursuing as partof the tax administration system, and some of these may be in conflict with revenue maximization. One objective is to reduce compliance costs. A level of enforcement commensurate with reducing tax evasion could imply a substantial increase in compliance costs. Tax statutes (by design) and administrative practice can shift, or try to shift, administrative costs to taxpayers. Withholding systems do this with employers, printing costs may be reduced by distributing fewer instructional materials to taxpayers, and so forth. Also, as noted above, tax systems become more complicated as

the economy evolves into a more complex set of market structures and the cost of complying with the tax law increases. Compliance costs may also be higher simply because the government has not taken them into account in its tax design. Moreover, compliance costs are often ignored at the time of writing the law which, of course, does not state that there is no need to pay taxes if it becomes very inconvenient or very costly to do so. But the government may be willing to ignore delinquency if compliance costs are high.

The right to privacy. Some tax policies are popular and acceptable in their nominal form, but entirely unacceptable if fully enforced. In such cases, the government creates loopholes for avoidance or simply ignores evasion-so long as minimal revenue targets are reached. A more negative way to state this is to say that "bad" policy design, for instance, tax laws that are difficult to understand and interpret, may be intentional. Ambiguous norms provide more opportunity for interpretation by politicians and even dishonest administrators.Thus, tax evasion is assuming new dimensions in the form of corporate frauds, public corruption and money laundering. In 2002, India enacted the Prevention of Money Laundering Act, 2002 (PMLA), which only became effective in 2005. The PMLA makes “money laundering” an offence punishable with rigorous imprisonment and a fine and with the attachment and confiscation of property involved in money laundering. “Money laundering” is defined as directly or indirectly attempting, indulging or assisting in any process or activity connected with the proceeds of offences included in the Schedule to the PMLA, and passing off such proceeds as legitimate property. The Schedule to the PMLA includes, inter alia, offences under the Indian Penal Code (homicide, kidnapping for ransom, extortion, waging war against the State, among others), offences related to trafficking in drugs and illegal dealings in arms and ammunition, trafficking of women and offences under the Prevention of Corruption Act. Because of the domination of cash element in transactions in India, evasion of tax is high. Further, the monitoring and deterrent mechanism is not effective in curbing tax evasion. Thus, people are emboldened to resort to tax evasion without any fear or deterrent.

Terrorist fundingIt is said that the 9/11 terrorist attacks in the US were financed through hawala. Instances have come to light in India also, where evidence of funding of terrorist activities through black money, hawala, have been detected.

Narcotics trade – This trade has flourished because of huge influx of black money

The limitation of conventional method of concealment detectionConventional methods of detecting concealment include TEPs, informers, search, survey, action u/s 132A, etc. In additon, information, regarding suspicious transactions, transactions above a prescribed limit and cash transactions has been streaming through such channels as FIU, AIR, BCTT. These methods, although effective, are not in tune with the today’s realities, where the transactions are fast, the evaders invisible, with smart and tech-savvy techniques of concealment of tax. Further, there is considerable delay in receipt of information and corresponding action upon it, which gives the evader time and leverage to escape. Lack of training and expertise in the contemporary techniques of financial transactions, accounting procedures, digital network, information technology, further compounds the problem of the taxmen.Incidence of data on computer on rise in a network having capacity to hold several truckloads of documents

Gone are the days when the data was stored in files and registers. Today is the era of computers, which have revolutionized the data storage procedures. The computers can store huge data in a single small chip, safely ensconced away from the eyes of the taxmen. With new ready to use softwares being available, and accounting procedures also being revamped, computers are being rampantly used everywhere for the day-to-day functions and data storage for their ease of operations and hassle free working. The Investigation Wing is ill equipped, both in terms of manpower and technical ability, to analyze the data contained in digital form. Searches confined to major cities whereas heavy growth/potential growth has also spread to midsize cities where scale of evasion is high.With the opening of economy, and saturation of metros, it is seen that development has shifted to midsize cities with all big business houses setting up offices in these areas to cut down their costs as well as to reap the benefits of infrastructure development. However, inspite of their potential, the Investigation Wing is either non existent in these areas or is woefully short of resources. Thus, tax evasion in these areas is high for want of effective vigilance machinery.

New channels of information – volume of AIR, FIU, CIB, BCTT, TEPIn the recent times, new channels of information have come up, which regularly send huge information on the investments, and potential tax visionary practices. Annual Information Return (AIR) of ‘high value

financial transactions’ is required to be furnished under section 285BA of the Income-tax Act, 1961 by ‘specified persons’ in respect of ‘specified transactions’ registered or recorded by them during the a financial year. The CIB charges are entrusted with the responsibility of receiving and disseminating the voluminous information contained in the AIR. The BCTT was levied through Fiance act 2005, and accordingly the Union Cabinet had sanctioned 7051 additional posts for this work. The scheduled banks were required to furnish a retrun giving information relating to taxable banking transactions. These retruns contained valuable information for tracking unaccounted expenditures, investments etc made out of cash withdrawals from bank accounts. However, the BCCT is being repealed wef 1/4/09. India established the Financial Intelligence Unit, India (FIU-IND www.fiuindia.gov.in) on 18 November 2004, which reports directly to the Economic Intelligence Council headed by the Minister of Finance, Government of India. The FIU-IND receives and analyses cash and suspicious transaction reports and disseminates valuable financial information to intelligence and enforcement agencies and regulatory authorities in India and foreign financial intelligence units. It also exchanges information with foreign financial intelligence units in respect of suspicious transactions. However, in spite of the vigilance machinery in place, hawala transactions are on the rise, and are being transformed from simple to complex ones. TEPs and CIB charges also contain voluminous information on tax evasion and investments. However, due to limited manpower available to the Department, the information contained is not being unlocked for effective monitoring.

Easy maneuvering and manipulation of accounts on computersComputers are being increasing used almost in every aspect of life, because of their easy and fast operation. In the matters of accounts also, new softwares have come up which allow easy accounting of the business transactions. The technology is updated at a fast pace. Computers also allow the users to maneuver and manipulate the accounts, being maintained on them, through simple steps. This further fuels tax evasion. The Department is required to keep track of all such activities, but lack of manpower and that too with expertise in computerized accounts, makes the monitoring difficult, with the result that evasion is flourishing without fear. Increase in e-commerce, bogus billing, floating of paper companies, financial scams, 132A cases

Lack of inhibiting mechanism has lead to an increase in bogus billing, financial scams and floating of paper companies, which are mere tools of tax evasion. E-commerce has further added to the woes of the department since the department still lacks in a proper screening mechanism for monitoring e-commerce activities. The other areas of concern are:

Time gap between event and information to Department is too long. Increase in number of sensitive cases relating to politicians and

bureaucrats Claiming tax exemptions by artificially boosting turnover through bogus

purchases by units covered under exemption. Increase in number of banking transactions below the requirement of

furnishing of PAN. Increase in strength, timely identification of accounts/persons through

coordination with banks.

This changing scenario calls for strengthening of Investigation Wing in terms of manpower and technical capability. The Central Charges also need to be strengthened to carry out search assessments. With the reduction in tax rates, introduction of schemes for scrutiny in a very small number of cases and changes in provisions relating to penalties from income based penalties to tax based penalties, there has been a distinct reduction in cost of non compliance. Considering the limited number of searches/surveys that can be conducted by the Investigation Wing with the limited manpower at its disposal as compared to the volume of activities aimed at tax evasion, a perception has grown that the chances of detection are so low as to allow a tax evader to resort to tax evasion.

The Investigation Wing is the deterrent arm of the Department. However, recently, its activities are severely hampered because of shortages of manpower. This is reflected in the no of warrants executed, which has declined from 4612 in 1995-96 to 3364 in 2007-08. The assets seized per warrant has also shown a decrease, from Rs. 458.14 crore in 1995-96 to Rs. 411.45 crore in 2007-08. Considering the spurt in economic activity in the country, ideally the situation should have been the reverse. But, lack of manpower has marred the functioning of the Investigation Wing, putting a limitation on the number of search/ survey action that can be conducted by the Wing. Accordingly, the public image of the Wing, as the deterrent arm, has also eroded and tax evasion has flourished without fear at a rate and scale not foreseen before. Scale of evasion of tax can

easily be discerned from the information being received from various channels like TEPs, FIU, AIR, BCTT, REIC, CIB, EOW, CEIB, and others. An increase in the cases u/s 132A of the IT Act further buttresses the view on the spurt in evasionary tactics. The Investigation wing is painfully lacking in resources, both in terms of manpower and material. In the ongoing scenario of high economic activity and mushrooming of economic zones, it is imperative that the investigation Wing is equipped with appropriate manpower for effective functioning as well as even distribution of the workload. Following posts are required in the investigation wing on the basis of functional requirements:-

No change in the existing number of DGIT As per functional requirement, 2 additional posts of DITs are considered

necessary. These posts are to be created Dehradun and Chennai. 8 additional posts of Jt. DIT/Addl.DIT to be created for the above two

additional posts of DIT. 32 additional posts of DDIT/ADIT to be created for the two directorates. 10 additional posts of ITOs to be created for the two new directorates.

3.5 Requirement of additional manpower in APPEAL Function/Division 3.5.1 Tax laws spawn litigation for various reasons. These litigations add enormously to the tax costs. The entire appeal process is time consuming and costly. Though a time limit of one year has been prescribed for disposing off appeals filed with the Commissioner of Income Tax (Appeals) but data obtained from the CAP-1 statements shows that over a period of years demands which have been locked up in appeals have been growing rapidly. There are many factors which have contributed to this, the primary one being the growth in overall revenues and the tax base, which has obviously resulted in growth in litigation and potential revenues being locked up in limbo. The following figure illustrates this point:-

3.5.3 It is seen that there is a sudden increase in the number of appeals. This increase corresponds to the great increase in revenue collections in the last 2-3 years. It also corresponds to the globalisation of our economy, implying thereby that the complexity of taxation and international transactions has also increased over time, resulting in greater litigation. It is thus obvious that the changed scenario warrants a corresponding alteration in our set up and all other parameters vis-à-vis appellate work.Taking the essence of various studies, it is found that parameters like quality of orders, speed of justice, domain knowledge/training etc play a vital role in keeping an organization in peak form so as to deliver at the least cost and peak efficiency. Some of these parameters are examined as below:-

3.5.4 The above analysis, brings forth the following key results: -- Enormous demands are locked in appeals– far greater than what was

promised in the Cabinet Note Annual opportunity cost of delayed disposal of appeals is enormous– could

be even 50% of total tax collections if costs of deterrence are incorporated.

Knowledge, motivation and sharing of information in the income tax department need immediate looking into.

Training at all levels needs a thorough revamp and expansion.

3.5.5 In view of the aforesaid, following recommendations pertaining to the working of the CIT(A) and CIT(ITAT) have been made: --

Appeals must have an Appellate Commissionerate– not stand alone islands Adequate work force right upto Group C level should be there Given the needs and requirements, the following is the proposed structure

for the CIT(A).

3.5.6 One Appellate Commissionerate for each Administrative Commissionerate is accordingly proposed. Consequently, following staff requirement emerge:-

o Presently 252 Admn Commissioners are working in the country along with 260 CIT(A). The number of administrative Commissioners is however, proposed to be increased to 307. The number of CIT(A) will also go up to 307. Accordingly, additional 47 posts of CIT(A) will need to be created

Following number of posts will be required in other cadres:-o 307*1 = 307 posts of ITOo 307*1= 307 posts of A.Oso 307 *1= 307 posts of ITIso 307*1 = 307 posts of Sr TAs

3.5.7 As regards posts of CIT(DR) in ITAT, no change in the existing deployment of posts of CIT(DR) is proposed. However, number of Sr. DR is proposed to be

increased from 57 posts to 61 posts at par with number of benches of ITAT. Further, CIT(DRs) and Sr. DR are to be given one AC/DC to help them with work relating to litigation process. 9 additional posts of are also proposed to be created.

3.6 Requirement of additional manpower in TRAINING Function/Division 3.6.1 Training in any organisation is an important integral part for smooth and efficient implementation of application software. Accordingly, it is necessary to provide adequate trained technical manpower at various levels to functions as trainers. It is proposed that such trainers should be posted at NADT Nagpur and various Regional Training Institutes (RTIs)

3.6.2 This division will function under DGIT, NADT, Nagpur and will be headed by an officer of the rank of Director(Systems) in the pay band of Rs. Rs 37400-67000 with grade pay of Rs 8900. The main functions of this Division would be as under :

(a) to ensure necessary hardware/software infrastructure at NADT, RTIs and MSTUs(b) to ensure availability of necessary training material at each Training site.(c) to ensure availability of latest ITD application software at each Training site. (d) to ensure that the trainers at all the levels have up-to-date knowledge of the software.

3.6.3 In view of foregoing, the total requirement of technical personnel for manning the Training (Application Software) at NADT, RTIs and MSTUs will be as follows:

S.No. Post Total Number of Posts Required

Remarks

1 Director (EDP/Technical) 1 One at NADT & Each RTI

2 Joint Director/Additional Director (NFSG)

9 One at NADT & Each RTI

3 Deputy Director 9 One at NADT & Each RTI

4 Assistant Director 9 One at NADT & Each RTI

5 DPA Grade 'B' 17 3 at NADT & 2 at each RTI

6 DPA Grade 'A' 17 3 at NADT & 2 at each RTI

Total 62

Further, the post of ADG in NADT is proposed to be upgraded to the level of Sr. CIT as they perform an important role in coordination of the training activities across various RTIs. Six additional posts of Jt./Addl.DITand six posts of DDIT/ADIT are also proposed to be created.

3.7 Requirement of different RESERVES

3.7.1 Every Organised Group A cadre has Reserve for officers posted on Deputation, those on Leave and those on Training and Probation. The prescribed ratio in IAS for these Reserves is as under:-Deputation Reserve 20% of posts in STS and aboveLeave Reserve 3.5% of posts in STS and aboveTraining & Probationary Reserve 16.5% of posts in STS and above

The IRS Cadre does not have any Reserves at all at present . This is a totally unacceptable situation. The absence of Reserves in various cadres under the administrative control of various central Ministries and the need to rectify the situation was one of the “raison-d’être” for making the process of cadre review an essential feature of cadre management and planning in Government after a Study Team on Personnel Administration. (Personnel Planning etc.) (1967) (1) had pointed out certain deficiencies in the management of cadres under the administrative control of various central Ministries. For instance, the Team observed that no deputation reserves were provided for in a large number of cadres and where they had been provided for, they proved to be chronically inadequate. It further pointed out that the provision made for training and leave reserves was equally unsatisfactory. Since no cadre could be considered viable without an adequate provision for various reserves, the Study Team recommended that reserves of suitable proportions should be built into every service/cadre. This also found mention in the recommendations the Administrative Reforms Commission in its Report on Personnel Administration released in 1969 which impressed upon the need for cadre reviews and further, such reviews to include the element of Reserves. It is in the light of the above and the various existing guidelines on the nature and strength of reserves that the various reserves have been proposed for the Cadre.

1: Probationers Reserve

Direct recruits to the IRS are normally given initial training for a period of 18 months . The posts against which they are shown during the training period, which includes post-entry institutional as well as on-job training is required to be shown separately as probationers reserve. As the period of training of a probationer is one and a half years, the size of probationers reserve would be equal to 1.5 times the size of one batch of direct recruits. Further, as the size of recruitment to the IRS varies from year to year, the maximum recruitment in one year , i.e. of 150 that is the probationers who joined in December 2008 is being taken as the basis for determination of size of reserve, which is being proposed as 225.

Deputation Reserves: Over the last few years the number of officers from IRS who have been on Deputation has hovered at around 200, even though there are a large number of organizations where the expertise of the officers is required given their specialization in taxation and financial matters, and a large number of officers cannot be released for deputation in spite of their being suited for the same and in spite of demands from Government organizations because of the total absence of any reserves in the Cadre. Keeping in view the existing instructions in the matter, the Cadre size, the needs of the outside (or ex-cadre) agencies for the services of IRS officers , having regard to the experiences and expertise developed, and the need that reserves should bear a reasonable proportion to the duty posts in the cadre, the number of deputation reserve is being pegged at 250.

ii) Training and Leave Reserve: The IRS being a technical service, dealing with a gamut of specialized functions requiring continuous skill upgradation through training, the need for adequate training reserves cannot be overemphasized. Based on the above need that has been elaborated elsewhere in this report, the Training reserve is being pegged at 422, and Leave Reserve at 42 related to its actual utilisation.

3.7.2 The absence of any Reserves at present is against the established norms. In fact, CAT, Lucknow Bench in their decision dated 10.01.208 in OA 123/2003 had directed that the rules of IRS should be so amended so as to provide for Reserves and other factors on par with other All India Services/ Central Services. This issue has already been taken up in the ongoing revision of RRs that is presently in an advanced stage of consideration. In the interregnum, some posts would be needed so as to immediately address the mismatch between the requirements and availability of manpower in the Department. The Committee accordingly recommends that reserve of following post should be created for the cadre:-

Deputation Reserve = 7% of posts in STS & above = 296 postsTraining Reserve = 10% of posts in STS & above = 422 posts

Leave Reserve = 1% of posts in STS & above = 42 posts

Total = 760 posts.Thus, an additional 760 posts will need to be created towards Reserves.3.8 CONCLUSIONS 3.8.1 The recommendations contained in this chapter will result in creation of following number of additional posts:-

Sr.No. Designation No. of additional Posts to be created

1 CIT/Equivalent 167

3 Additional/Joint CIT/Equivalent 283

4 DCIT/ACIT/Equivalent 588

5. ITOs 1826

6 AOs 250

7 Inspectors 3002

8 DPAs 308

9 STA/TAs 3002

10. Stenographers/DEOs 2089

11. Reserves for IRS 760

TOTAL 8965

These posts do not include 42 posts of Principal CCITs/DGITs; 74 posts of CCITs/DGITs and 116 posts of Senior CITs/DITs as these are being created by simultaneous abolition of posts in other grades. 3.8.2 Thus, an additional 8965 posts will be required. Out of these 1798 posts will be created in the IRS cadre including a Reserve of 760 posts. The remaining posts will be created outside the IRS Cadre in Group B & C. The additional financial implications on creation of these posts would be approximately Rs 150 crore per annum.

4 INTER-SERVICE COMPARISON4.1 Threshold analysis - One of the major objectives of a cadre review exercise is to “bring about congruence between functional needs and legitimates aspirations of the members of a Service.” The manpower requirements of the Indian Revenue Service based on functional aspects have been examined in Chapter-5 earlier. In this Chapter, we examine the position of the IRS in relation to other organised Group A Services, with special reference to Central Services.The Fifth Central Pay Commission, while dealing with the model cadre structure for Group A Services, recommended the following timelines for promotion to various levels:

Timelines for promotion in Group ‘A’

Grade Years of service

STS 4 yrs

JAG 9 yrs

NFSG 14 yrs

SAG 17 yrs

HAG 25 yrs

As per the Recruitment Rules of the Indian Revenue Service, the following eligibility criteria for promotion to various levels have been prescribed:

Timelines for promotion in IRS (as per Recruitment Rules)

Grade Years of service

STS 4 yrs regular service in Group A

JAG 9 yrs regular service in Group A

NFSG 14 yrs regular service in Group A

SAG 17 yrs regular service in Group A

HAG 3 yrs service in SAG (20 yrs)

HAG+ NO SUCH POST/SCALE IN IRS

Apex Scale NO SUCH POST/SCALE IN IRS

In the IRS, the following position obtains (as on 1.1.2009):Promotion in IRS (actual time taken)

Grade As per RRs Actual Remarks

STS 4 years 4 years --

JAG 9 years 10 years Promotion is delayed by 1 year

NFSG 14 years 14 years --

SAG 17 years 21 years Promotion is delayed by 4 years

HAG 20 years 33-34 years Promotion is delayed by 13-14 years

HAG+ -- -- NO SUCH POST/SCALE IN IRS

Apex Scale(Secretary

level)

-- -- NO SUCH POST/SCALE IN IRS

In contrast to the above, the comparative position vis-a-vis other Central Services Group A is as under:

Threshold Analysis (Central Services Group A)

SERVICE HAG + HAG SAG JAG/NFSG

IFS 1974 (34) 1976 (32) 1988 (20) 1995 (13)

IAAS 1972 (36) 1979 (29) 1991 (17) 1995 (13)

1999 (9)

IRTS 1972 (36) 1975 (33) 1987 (21) 1997 (11)

ICAS 1971 (37) 1979 (29) 1988 (20) 1998 (10)

POSTAL 1971 (37) 1979 (29) 1985 (23) 1993 (15)1994 (14)

IDES NA 1973 (35) 1981 (27) 1985 (23)1991 (17)

ICCES 1969 (39) 1975 (33) 1987 (21) 1994 (14)1997 (11)

IRS NIL 1974 (34) 1986 (22) 1993 (15)1997 (11)

Source: DOPT (as on 1.4.2008)

4.2 Structural RatiosThe comparative cadre structure and structural ratios of IRS and other Central Services are given below:

Cadre Structure (Central Services Group A)

SERVICE HAG + HAG SAG JAG/NFSG STS/JTS TOTAL

IFS 34 (4.93) 35 (5.08) 188 (27.29)

169 (24.53) 263 (38.17) 689

IAAS 8 (1.15) 25 (3.60) 110 (15.85)

160 (23.05) 391 (56.34) 694

IRTS 13 (1.22) 29 (2.72) 164 (15.37)

375 (39.15) 486 (45.55) 1067

ICAS 3 (1.96) 3 (1.96) 25 (16.34) 46 (30.07) 76 (49.67) 153

POSTAL 7 (1.49) 20 (4.26) 58 (12.37) 91 (19.40) 293 (52.48) 469

IDES 1 (0.85) 6 (5.08) 12 (10.17) 36 (30.51) 63 (53.39) 118

ICCES 7 (0.28) 47 (1.90) 295 (11.95)

593 (24.03) 1526 (61.83) 2468

IRS 0 (0.00) 116 (2.77)

723 (17.28)

1253 (29.95) 2092 (50.00) 4184

Structural Ratios (Central Services Group A)

SERVICE JAG TO TIME SCALE

JAG + TO TIME SCALE

SAG + TO JAG

SAG + TO TOTAL DUTY

POSTS

SAG + TOSTS

IFS 64.26 161.98 152.07 37.30 125.98

IAAS 40.92 77.49 89.38 20.61 55.86

IRTS 77.16 119.55 54.93 19.31 63.98

ICAS 60.53 101.32 67.39 20.26 50.00

POSTAL 31.06 60.07 93.41 18.12 37.61

IDES 57.14 87.30 52.78 16.10 52.78

ICCES 38.86 61.73 58.85 14.14 58.07

IRS 59.89 100.00 66.96 20.05 67.66

Source: DOPT (as on 1.4.2008)4.3 Cadre Structure

It can readily be seen from the above tables that the position of IRS is very bad compared to other Central Services. As a matter of fact, the stagnation ratios in different grades reflect this pathetic situation. In the higher grades, the number of officers stagnating (ie., not promoted to the next higher grade for want of vacancies, although eligible to be promoted as per RR) is more than 50% of the strength of that grade.

SERVICE HAG +

HAG SAG JAG/NFSG STS/JTS TOTAL HAG and

above to SAG

HAG and

above to Total

IFS 34 35 188 169 263 689 36.70% 10.02%

IAAS 8 25 110 160 391 694 30.00% 4.76%

IRTS 13 29 164 375 486 1067 25.61% 3.94%

ICAS 3 3 25 46 76 153 24% 3.92%

POSTAL 7 20 58 91 293 469 46.55% 5.76%

IDES 1 6 12 36 63 118 58.33% 5.93%

ICCES 7 47 295 593 1526 2468 18.31% 2.19%

IRS 0 116 723 1253 2092 4184 16.04% 2.77%

Stagnation Ratio 4.4 It is seen that the promotional avenues of IRS officers are severely blocked, resulting in stagnation/delays in promotion. A contributing Source: DOPT (as on 1.4.2008)factor in this regard is the low number of posts at higher levels. Another important factor is the absence of two higher scales i.e HAG+ and Apex Scale. An analysis of the Cadre Structures of various Services reveal that the ratio of posts at HAG and above to SAG, and the ratio of posts at HAG and above to total cadre posts in the IRS is very low compared to other Services.

Existing and Proposed Cadre Structures

Sr. No. Post Pay Scale

Number of PostsFinancial

Implications(Rs. In lacs)

Batch Promoted

Present Proposed AdditionalAs per

Present Structure

As per Proposed Structure

1 Principal CCIT/DGIT Rs. 80,000 (fixed) Nil 42 0* 6.09

2 CCIT Rs. 75,500 – 80,000 Nil 74 0* 10.74

3 Senior CIT/DITRs. 37,400-67,000 + Grade Pay of Rs. 12,000

116(Surrendered) 346 0$ 100.47 1982

4 CIT/DIT/EquivalentRs. 37,400 – 67,000 + Grade pay of Rs. 10,000

731(346 Posts

Surrendered)552 +167 1508.25 1990

5

Addl. CIT/DIT/EquivalentJt. CIT/DIT/Equivalent

Rs. 37,400 – 67,000 + Grade pay of Rs. 8700Rs. 15,600 –39,100 + Grade pay of Rs. 7600

1253 1536 +283 1969.32

6 Dy.CIT/Dy. DIT/Equivalent

Rs. 15,600 – 39,100 + Grade Pay of Rs. 6600

1356 1739 +383 1888.03

7Asstt. CIT/Asstt. DIT /Equivalent

Rs. 15,600 – 39,100 + Grade pay of Rs. 5400 736 941 +205 6250.86

8 Reserves Rs. 15,600 – 39,100 + Grade pay of Rs. 5400

Nil 760 +760 2317.39

Total 4192 5990 1798 8425.41

It may therefore be clear that creation of additional posts in the higher grades on strict functional considerations will not confer any special benefit on the officers of this cadre. 4.5.: Reorganization of DIRECTORATES of the Department

4.5.1 Most of the Directorates of Income Tax are attached offices of the Central Board of Direct Taxes and they constitute a vital link between the Board and its field formation for implementation of Direct Tax Laws. Traditionally, these Directorates have their own Cadre of Group ‘B’, ‘C’ & ‘D’ Staff. Some of these Directorates have combined cadres, though posts have been specifically earmarked and allocated for them. Few Directorates were created in CBDT after the last re-structuring of the Department. These Directorates do not have their own cadres, however, posts in Group ‘B’, ‘C’ and ‘D’ have been sanctioned for these Directorates and placed in the overall cadre of Chief Commissioner of Income Tax, Delhi. Some more Directorates have been created by CBDT [i.e. Directorates of Income Tax (Systems) –II to VI and DIT –Investigation] recently by diversion of existing posts. No posts in Group ‘B’, ‘C’ and ‘D’ have been created for these new Directorates. 4.5.1.8 The posts for the Directorates of HRD, Infrastructure & Legal & Research-I were created at the time of last cadre restructuring and their group ‘B’, ‘C’ & ‘D’ posts are part of the overall cadre strength of CCIT, Delhi. The other Directorates have been created after diversion of existing field posts of the Income Tax Department and no separate post in Group ‘B’, ‘C’ & ‘D’ has been created for these Directorates. Staff has been drawn in these Directorates from CCIT, Delhi on ad-hoc basis. 4.5.1.9 The Directorates of Income Tax (PR PP & OL) & Directorate of Income Tax (Systems), besides performing normal nature of duties are also assigned with the work of technical nature. Directorate of Income Tax (PR PP & OL) is responsible for implementation of official language in the Income Tax Department and Collection and Analysis of Statistical data for formulation of policies. Directorate of Income Tax (Systems) is responsible for computerization in the Income Tax Department. Accordingly, the Directorate of Income Tax (PR PP & OL) has technical posts for its Official Language Wing and Statistical Wing. Similarly the Directorate of Income Tax (Systems) has EDP Cadre posts.

4.5.1.10 There is an acute stagnation at all levels in almost all Cadres of the Directorates. Each Cadre has its own Recruitment Rules for Group ‘B’, ‘C’ & ‘D’ posts and there is no provision of inter-charge transfer between them. As a result, once a person is appointed in a particular Directorate, he has to remain in the same Directorate during his entire length of service. Apart from blocking the scope of upward mobility, working in the same office for a long time also results

in monotony and loss of interest in the official duties. This monotony can be broken if the staff and officers of the Directorates are allowed to move between the Directorates on Inter-charge transfer. 4.5.1.11 The other problem being faced by the new Directorates emanate from acute shortage of manpower. The staff strength for the new Directorates has been provided by CCIT, Delhi. In the case of three Directorates posts required for functioning of the Directorates were sanctioned, while the others are drawing staff from the existing cadre strength of the CCIT, Delhi. It has not been possible for CCIT, Delhi to provide full component of staff to these Directorates due to various constraints.4.5.1.12 A Committee was set up by CBDT under the Chairmanship of the Director General of Income Tax (Admn) for restructuring of the Directorates attached to CBDT. The Committee, after examining the Recruitment Rules and the eligibility criteria/qualifying service etc. for promotion to different levels found that the Recruitment Rules do provide for two or more promotions during the career of an employee subject to availability of vacancy. The Committee found that the employees of these Directorates as per their eligibility have been extended the benefits of the Assured Career Progression Scheme which grants financial upgradation only, but does not extend regular promotion as the same in linked with occurrence of vacancy. As such, the problem of stagnation faced by the employees of the Directorates continues. The Committee considered various measures to overcome this problem of stagnation and decided upon the strategy of restructuring to provide better avenues for promotion. The Committee was of the considered view that various cadres of the Directorates need to be restructured and merged in order to provide better promotional avenues to the employees.

4.5.1.13 The Committee was of the view that the cadres of the Drivers and Stenographers did not require any restructuring as these cadres were already restructured in accordance with DOP&T (Estt. 'D') O.M. dated 15.02.2001 and 11.04.2001. However, after restructuring, separate cadres of the Stenographers in different Directorates will also merge to form a single cadre. It would improve the promotional scenario for this cadre also. The cadre of drivers already stands merged.The Committee noted that there was acute stagnation in all the cadres of the Directorates. Further, it noted that stagnation was not on account of non-availability of eligible candidates for promotion to higher grades but on account of shortage of vacancies in the higher grades. The Committee, therefore, was of the view that only amendments to the existing set of Recruitment Rules of various grades would not succeed in removing stagnation. Creation of better promotional avenues by restructuring the cadres will provide opportunities for promotion.

4.5.1.14 The Committee noted that in some of the Directorates the cadre strength was very small because of which adequate promotional avenues did not exist and even by restructuring such small cadres, not much would be achieved. The Committee, therefore, recommended that the single cadre control for all the Directorates be created by merging the respective cadres followed by restructuring of these cadres on the broad pattern adopted in the Income-tax Department. The cadre control of the merged cadre could be with DGIT (Admn). It was noted that this may be a feasible proposition. In case of creation of unified cadre control of the Directorates the promotional avenues would get increased.

4.5.1.15 A number of cadres (ranks) in different Directorates exist in the same grade pay. It may not be desirable to have such large number of cadres for proper administrative control. It is, therefore, recommends that the various cadres in Group-‘C’ be merged keeping in view the work norms and pay scales and the total number of cadres be reduced to five or six.

4.5.1.16 In any administrative set-up, designations have an important place, as these broadly indicate the grade and level of responsibility of an officer and provide an index for comparing positions in different departments; and further, a change of designation is indicative of advancement in official career and, as such, has a considerable effect on the morale of the officers. Accordingly, the various authorities and staff of Directorates should be re-designated.

4.5.1.17 The office of DG (Inv) Delhi is an attached office of the CBDT. It has separate cadre strength of its own which is supplemented by the staff from the office of CCIT, Delhi. However, all the other Directorates of Investigation in the country are subordinate offices, not attached to the CBDT. The members of the Committee were of the view that this is an anomalous situation. The Committee, therefore, recommended that the office of DG (Inv) should be a subordinate office of CBDT. In its place the newly created offices of Directorate of Vigilance, Infrastructure, HRD, Directorate of L&R and BPR may be given the status of attached offices.

4.5.1.18 In view of these recommendations the structure of the restructured cadres will be as under:-

S.NO.

EXISTING CADRE PROPOSED CADRE PAY SCALE

METHOD OF RECRUITME

NT

REMARS

1. New Post Sr. Administrative Officer PB-3Rs.15600-39100 with Gr. pay of Rs.6600

100% by way of promotion from Administrative Officer Gr.I

New posts. Initially this post can be filled up from amongst ADD who have put in 4 years regular service as such.

2. Addl. Asst. Director Administrative Officer-Gr.I PB-2Rs.9300-34800 with Gr. pay of Rs.4800

100% by way of promotion from Administrative Officer Gr.II

The post of AAD may be upgraded to the post of A.O. Gr.I

3. Superintendent Senior Administrative Officer-Gr.II PB-2Rs.9300-34800 with Gr. pay of Rs.4600

100% by way of promotion from Sr. Technical Assistant

The post of Superintendent (Sr.) may be upgraded to the post of A.O. Gr.II

4. Superintendent Junior Sr. Technical Assistant PB-2Rs.9300-34800 with Gr. pay of Rs.4200

50% by way of promotion from UDC and 50% by way of Direct Recruitment

The post of Superintendent (Jr.) may be merged with the post of Sr. Technical Assistant

5. Assistant Sr. Technical Assistant PB-2Rs.9300-34800 with Gr. pay of Rs.4200

50% by way of promotion from UDC and 50% by way of Direct Recruitment

The post of Assistant may be merged with the post of Sr. Technical Assistant

6. UDC UDC PB-1Rs.5200-20200 with Gr. pay of Rs.2400

100% by way of promotion from LDC

7. LDC LDC PB-1Rs.5200-20200 with Gr. pay of Rs.1900

25% by way of promotion from group ‘D’ cadre and 75% by way of Direct Recruitment

8. Group ‘D’(Daftary/Peon/Farash/Chowkidar)

Daftary/Peon/Farash/Chowkidar

PB-1Rs.5200-20200 with Gr. pay of Rs.1800

100% Direct Recruitment

4.5.1.19 After restructuring, direct recruitment quotas have been fixed in the grades of TA (Rs.4000-6000) and Inspector (Rs.5500-9000). Similarly, in the Directorates also, there should be provision for induction of direct recruits (DR) in the grade of Assistant (Rs.5500-9000). At lower level, DRs may, as of now, continue to enter the grade of LDC. Induction of DRs at the level of Assistant is necessary to man posts at higher levels as LDCs cannot be expected to raise up to the level of Sr. A.O.

4.5.1.20 The post of DGIT (Admn.) is in the rank of Addl. Secretary to the Government of India. The Cadre Review Committee is elsewhere recommending that this post should be upgraded to the level of Secretary to the Government of India. While it would be appropriate to merge all the cadres in the attached Directorates of Income Tax to form a combined cadre under DGIT (Admn.), he will still need assistance of an HOD and his Secretariat to function as Cadre Controlling Authority. Since DIT (PR PP & OL) is the largest Directorate in terms of manpower and resources and has its own administrative unit, the DIT (PR,PP&OL) can be designated as HOD and his administrative unit can provide the Secretariat for the combined cadre.

4.5.1.21 AADs may be provided higher pre-revised scale of Rs. 7,500-12,000 because the pay scales of AADs have always been at par with the pay scales of ITOs in the field. In fact, many ITOs have to perform functions of AADs in Directorates. The pay scale of ITOs was revised to the pre-revised scale of Rs. 7,500-12,000 at the time of last restructuring. However, the same benefit was not extended to the AADs in the Directorates. Since, these posts have traditionally

been at par and the ITOs can also be posted as AADs, it would be appropriate to restore the parity between these two posts. It is also noted that the administrative functions performed by AADs in the Directorates are performed by the Administrative Officers Grade II in the field, who have also been placed in the pre-revised scale of Rs. 7,500-12,000. There is no reason as to why; there should be any differentiation between the pay scales of AADs and Administrative Officers Grade II.4.5.1.22 After the recommendations of the 6th CPC, the pay scales of Assistants, Senior Technical Assistants and AADs have become identical in the scale of PB-II – Rs. 9300-34800 GP 4200. The posts of Senior Technical Assistants constitute feeder posts for AADs. Since the feeder posts and promotion post have become identical, it would be appropriate to upgrade the promotion post to the scale of Rs. 9300-34800 GP 4800.4.5.1.23 Subsequent to the recommendations of the Committee, 5 new Directorates namely, HRD, Infrastructure, BPR, L&R and TDS have been set up. As mentioned, posts for the subordinate staff for three of these Directorates were placed in the Cadre strength of CCIT Delhi. The posts sanctioned for these Directorates included the posts of ITOs, Administrative Officers, Inspector and office Superintendent. While the posts of AO and OS is common between the old the new Directorates, the posts of ITOs and Inspectors do not exist in the Cadre of the Directorates.

4.5.1.24 In Directorates like L&R and HRD where services of ITOs are required, these posts may be designated as AAD and these may be filled up on deputation basis from amongst the ITOs. In other Directorates, these posts may be converted into AO Grade II (at present AADs) to be filled up on promotion by secretarial staff of the Directorates. Similarly, wherever required, the post of Inspectors may be converted to STAs. This would bring parity of designations between the old and the new Directorates and ensure smooth transfer of manpower from one Directorate to the other.

4.5.1.25 The posts of Addl. Asstt. Director and Private Secretary are group ‘B’ gazetted posts and therefore, these posts should be put in higher pay scales. The Sixth Pay Commission had recommended that where it is not feasible to merge the pay scale of Rs. 5000-8000, 5500-9000 and 6500-10500 on functional consideration, the posts in the pay scale of Rs. 5000-8000 and 5500-9000 should be merged, with the post in the scale of 6500-10500 being upgraded to the next higher grade in pay band PB-2 i.e. to the grade pay of Rs.4600 corresponding to the pre-revised pay scale of 7450-11500. This needs to be implemented.

4.5.1.26 Four Directorates in DG (Systems), two in BPR and one each in L&R and TDS do not have any sanctioned post of subordinate officers. 25

posts of subordinate officers (up to AAD level) need to be created for these Directorates as per the chart given below:-

S.NO. NAME OF THE POST NO. OF STAFF

1. ITO (to be re-designated as AAD) 2

2. PS 1

3. AO 1

4. Inspectors (to be re-designated as Sr.Technical Assistant)

5

5. O.S. 2

6. Stenographer 4

7. Sr. T.A. 1

8. T.A. 4

9. Daftary/Peon 5

Total 25

4.5.1.27 Six newly created Directorates viz DIRECTORATE OF INCOME-TAX (BPR-I); DIRECTORATE OF INCOME-TAX (BPR-II); DIRECTORATE OF INCOME-TAX (L&R-II); DIRECTORATE OF INCOME-TAX (TDS); DIRECTORATE OF INCOME-TAX (SYSTEMS-II) and DIRECTORATE OF INCOME-TAX (SYSTEMS-III) do not have their own sanctioned strength. These Directorates are doing their functions with the help of staff provided to them by the CCIT office. It is proposed that the newly created Directorates should have their own sanctioned strength and the staff posted by the CCIT office may be reverted to their respective office. Accordingly, 200 additional posts at the rate of 25 additional posts for each Directorate for the six Directorates which are presently without any sanctioned staff are recommended as follows:-

S.NO. NAME OF THE POST NO. OF STAFF

1. ITO (to be re-designated as AAD) 2

2. PS 1

3. AO 1

4. Inspectors (to be re-designated as Sr.Technical Assistant)

5

5. O.S. 2

6. Stenographer 4

7. Sr. T.A. 1

8. T.A. 4

9. Daftary/Peon 5

Total 25

4.5.1.28 Following further recommendations are made:- In order to avoid any confusion the entire staff of DG (Inv) cadre would be

merged with the cadre of CCIT Delhi. Only those serving staff who opt for combined cadre for Directorates will be absorbed in it. In order to give some time to the combined cadre to fill up senior level vacancies, the officials of erstwhile DG (Inv) cadre may be asked to work in combined cadre on deputation basis.

134 posts of CCIT Delhi sanctioned for Directorate of HRD, Infrastructure, L&R-I and Vigilance would be merged with the combined cadre of the Directorates The CCIT Delhi Cadre which will be responsible to fill up the post in DG(Investigation) would require creation of identical number of posts surrendered from DGIT(Investigation)

Once the posts are shifted from the cadre of CC Delhi to DG (Admn.), identical number of posts shall be reduced from the cadre of CC Delhi.

The following group ‘A’ posts may continue to be filled up from amongst the IRS officers:-

1. Director of Income-tax2. Addl./Jt. Director of Income-tax3. Dy. /Asstt. Director of Income-tax The Group ‘A’ posts of ISS cadre in DIT (PR, PP&OL) may also continue to be

filled up from the amongst the ISS cadre officers. The Group ‘B’ and ‘C’ posts may be filled up from amongst the staff of the Directorate.

The EDP cadre being a technical cadre cannot be merged with the other non-technical cadres. The Sub-committee is of the view that the DGIT (Systems) may be designated as Cadre Controlling for the EDP Cadre posts.

DIT (PR, PP & OL) may continue to be the Cadre Controlling for Official Language cadre. EDP cadre

25. At present the number of sanctioned posts in EDP cadre are:

S.No. Name of the Post Pay Scale Sanctioned Strength

Working Strength

1 Joint Director (Systems) 12000-16500

5 4

2 Deputy Director (Systems) 10000-15200

26 13

3 Assistant Director (Systems) 8000-13500 73 47

5 Data Processing Assistant Grade 'B' 6500-10500 55 20

6 Data Processing Assistant Grade 'A' 5500-9000 162 39

Total 321 123

4.5.1.30 Over a period of time, due to change in the field of Information Technology, growth in Networking Technology, considerable growth in the number of users accessing the system and to adopt the business models and practices followed worldwide in Tax Administration, the Government of India decided to revamp the Income-Tax Department to achieve the following :(a) to provide world class facilities to the income-Tax payers;(b) to Increase voluntary compliance of the Income-tax laws;(c) to widen and deepen the tax base.4.5.1.31 To achieve the above objectives, the Department sought approval of the Cabinet for full computerisation of Income-Tax Department which inter-alia included the following aims: “Full computerisation of the Income Tax Department is necessary to ensure faster processing of returns and refund claims. This will enhance taxpayer satisfaction, introduce higher transparency and free part of the manpower for investigation. National databases of financial information so generated can be matched across the country with the information in returns of income, and that collected from

other sources. The resultant higher level of deterrence will lead to increased compliance and higher revenues.”4.3.1.32 Accordingly, with the approval of Cabinet, the Department has commenced implementation of the Perspective Plan of Computerisation by way of following indicative initiatives amongst others :(a) to extend computerisation and network in all the 745 offices of the Department spread over 510 cities all over India by establishing hybrid MPLS (Multi Protocol Label Switching) based IP-VPN (Internet Protocol-Virtual Private Network) network that will connect all the offices of Department on to the TAXNET;(b) introduction of e-Governance services to the taxpayers;(c) consolidation of 36 regionally distributed databases into single National Database on the principle of ‘Single Application Single Database’ to serve its more than 12,000 internal users;(d) by migrating from legacy 2-tier Application Architecture to 3-tier Architecture on Oracle RDBMS and Application Server 10g environment;(e) Setting up of one active Business Continuity Plan (BCP) site and one passive Disaster Recovery (DR) site;(f) Jurisdiction free Central Processing Centres on the principle of ‘any where any time filing’ of Income-Tax returns.(g) De-Materialisation of TDS certificates.4.5.1.33 In view of Government’s decision to implement the Perspective Plan of Phase III Computerisation which, inter-alia, includes consolidation of databases and centralised processing in a 3 tier application architecture environment, it has now become inevitable that the EDP Cadre of the Department is appropriately structured, strengthened and nurtured, so as to ensure smooth, effective and efficient support, on an ongoing basis, for success of Department’s Computerisation efforts.

4.5..1.34 With the adoption of a new approach i.e. centralised processing and consolidation of databases, certain activities of the Regional Computer Centres and Computer Centres, particularly basic operations, are done away with while a few other specialised technical jobs are included. Moreover, as a result of outsourcing of some of the activities to intermediaries like NSDL and UTISL coupled with the engagement of various service providers viz System Integrator, Network Services Provider and Data Centre Service providers, there is a paramount need to put in place appropriate management, monitoring and evaluation mechanism to achieve optimum functional efficiency as also to ensure the security of database and network. Thus, it will be necessary for the Department to have a strong and capable EDP force which could shoulder the responsibility of privacy and safety of this classified and confidential data of

National importance in order to keep away every potential threat; be it from Man or Machine. 4.5.1.35 Total number of additional posts required in the EDP cadre is as under:-

Sr.No.

Post Total number of posts required

System Management Division Total Requirement of Technical Manpower in EDP cadre

System and Database Administration

Network Administration

Security Administration

1 Director (EDP/Technical)

10

2 Joint Director/Additional Director

2 1 1 2

3 Deputy Director 4 2 2 44 Assistant Director 4 2 2 45 DPA Grade 'B' 4 2 2 56 DPA Grade 'A' 4 2 2 5Total 20

5. SUMMARY OF RECOMMENDATIONSo Introduction of the Apex Scale and HAG+ Grade in the with 42 post

being created in two Apex Scale of Rs. 80,000 (fixed) and 74 posts being created in the HAG + Scale of Rs. 75,500 – 80,000 along with simultaneous abolition of 116 posts in HAG grade (PB-4 plus Grade Pay of Rs. 12,000).

o Status of Administrative Commissioners of Income Tax to be elevated to HAG (PB-4 plus Grade Pay of Rs. 12,000) Higher status for the posts of DIT(Inv.); CIT(Central); DIT(Training); DIT(Vigilance); DIT(Int’l Taxation) [to be redesignated CIT(Int’l Taxation)] as well. 346 posts to be placed in this higher grade.

o No change in the status of other posts.

o Additional posts to be created on functional considerations in other grades as under:-

Sr. No.

Designation Pay Scale Additional posts proposed

1 CIT/equivalent PB-4 + Rs. 10,000 167

2 Addl. CIT/ JCIT/ equivalent PB-4 + Rs. 8700PB-3 + Rs. 7600

283

3 Dy. CIT/ Asstt. CIT/ equivalent PB-3 + Rs. 6600PB-3 + Rs. 5400

588

4 Reserve PB-3 + Rs. 5400 760

5 ITO PB-2 + Rs. 4800PB-3 + Rs. 5400

1826

Posts in lower grades to be created accordingly by following the prescribed norms of 1 Inspector, 1 TA/STA and ½ DEO/Stenographer for every ITO and 2 Inspectors, 2 TAs/STAs and 1 DEO/Stenographer for every ACIT/DCIT in a Range.

o Ranges to have six assessing officers including 2 ACITs/ DCITs in Central Range and 1 ACIT / DCIT in other Ranges.

o All DGsIT in HAG+ of Rs. 75,500 – 80,000 to be redesignated CCITso An additional post of CIT to be created for Budget and expenditure

related work.o A special committee to be constituted for looking into feasibility of

placement of officers in embassies for investment facilitation and fax advice.