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Harassment is one word that can sum up the functioning of the income-tax department. High-pitched assessments are the order of the day. The CBDT even constituted a ‘High Pitched Scrutiny Assessment Committee’ to look into grievances about arbitrary and irrational demands raised by assessing officers. But nothing was achieved. High demands are sought to be enforced immediately.
If taxpayers succeed in the first appeal, the I-T department can drag them to the Tribunal by way of second appeals, then to the High Court and thereafter to even the Supreme Court. A research paper titled ‘Tax Dispute Resolution in India: Trends and Insights’, showed a pendency of 4,65,349 cases at various tribunals and courts involving disputed tax of ₹6,38,000 crore as on March 31, 2018.
The amounts involved in appeals before the Tribunal, High Courts and the Supreme Court stood at ₹4,96,000 crore. In 2016, the Minister of State for Finance informed Parliament that the amount stuck in direct tax litigation was ₹8,20,741 crore.
We do have a built-in mechanism for resolution of disputes. Unfortunately, the time taken is pretty long. The Authority for Advance ruling seldom completes the case within six months, and its orders are appealable. The Settlement Commission is practically dormant.
Largest litigant
The Economic Survey 2018 noted that as on March 2017, 1,37,176 direct tax cases were under the consideration of the Income Tax Appellate Tribunal, High Courts and the Supreme Court (see Table). And just 0.2 per cent of these cases constituted nearly 56 per cent of the total demand value, and 66 per cent of the pending cases, each less than ₹10 lakh in claim amounts, added up to a mere 1.8 per cent of the total locked-up value of pending assessments.
The success rate of the department is 27 per cent at the Supreme Court, 13 per cent at the High Court and 27 per cent at the Tribunal level. The department is the largest litigant. Its appeals constituted 85 per cent of the total number of appeals filed.
Pendency, delays, injunctions are impacting the progress of cases. The government is also looking at expanding the Dispute Resolution Panel mechanism and resorting to mediation to settle pending disputes.
An immediate solution to this should be thought of in the upcoming Budget. This could be in the form of the Samadhan Scheme for direct taxpayers. The government has foregone a revenue of ₹1.46 lakh crore when corporate tax rates were brought down by the Ordinance of September 2019. What did the non-corporate taxpayer gain? Nothing.
The amount involved at the CIT (Appeals) level stands at ₹6,38,000 crore. As per the figures given in the Central Action Plan of the CBDT, the number of appeals pending before the CIT (Appeals) is 3,21,020 for financial year 2019.
In para 141 of her Budget Speech for 2019-20, the Finance Minister referred to the huge pending litigation from the pre-GST regime and brought in a Dispute Resolution Scheme for quick closure of litigation. A similar scheme is the need of the hour for direct taxpayers.
To start with, the government can look into the following suggestions: write off all four figure demands; learn to accept orders adverse to the Department given by the first appellate authority; resist all attempts at the Tribunal level to remand a case for further scrutiny; mediate with the taxpayer to ensure payment of part demand on condition of waiver of interest and penalty; constitute a panel to look into grievances of high-pitched assessments and scale down the assessments in a Samadhan scheme; never resort to coercive measures for recovery till the first appeal is settled; and fix a time limit for availing of the Samadhan scheme which should be liberal and not a mere token gesture.
The Sabka Vikas Scheme under the Central Excise and Service Tax achieved moderate success. This is the right time to roll out a similar scheme on the direct taxes front. The Direct Tax Task Force set up last year appears to have recommended such a scheme. Let us wait and watch.
Ramanujam is a former Chief Commissioner of Income-Tax, and Sangeetha is a Chennai-based advocate
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