Revenue locked in appeals with Income Tax Commissioners across India rose in fiscal year 2016-17 to ₹6.11 lakh crore: that’s only marginally less than the size of banks’ non-performing assets (NPAs) of about ₹8 lakh crore.

That mountain of assessments under litigation, which grew taller by 15 per cent over the previous year’s ₹5.30 lakh crore, has set off alarm bells at the Central Board of Direct Taxes (CBDT), which oversees the collection of Personal Income Tax, Corporate Tax and Securities Transaction Tax.

The Central Action Plan for 2017-18, prepared by the CBDT, notes that rising litigation with taxpayers and the quantum of revenue locked up in appeals is a matter of serious concern that requires attention.

The redress mechanism

Taxpayers unhappy with the quantum of tax levied have recourse to a four-tier redress mechanism: the Income Tax Commissioner (Appeal), the Income Tax Appellate Tribunal (ITAT), the High Court, and the Supreme Court. In rare cases, the dispute may be handled by an Advance Ruling Authority and Settlement Commission.

The number of appeals pending with Income Tax Commissioner rose to 2,90,227 on April 1, 2017 from 2,59,718 a year earlier, an increase of 11.74 per cent. The tax demand stayed by the ITAT and Courts as on April 1, 2017, was ₹1.18 lakh crore.

The document noted that litigation has been rising over the years, and had acquired grave proportions. Such high volumes of litigation not only render a big chunk of revenue unrealisable, but also impede the the policy objective of providing tax certainty to taxpayers. The document called for “concerted action” to address this.

The pendency of appeals with Income Tax Commissioners and the demands locked there has been increasing over the years: indicatively, of the 2,90,227 appeals pending as on April 1, 2017, about 28 per cent were appeals filed before March 31 2015.

Almost 67 per cent of the total appeals pending involve tax demand of less than ₹10 lakh; in more than 1 lakh appeals, the demand involved is less than ₹2 lakh, the document said.

Targets to clear appeals

Commissioners have been given targets for disposing of the appeals: each Commissioner must dispose of at least 500 appeals during this fiscal year.

At least 30 per cent of appeals disposed of must relate to tax demands of above ₹10 lakh; where the demands involve amounts less than ₹10 lakh, each Commissioner should dispose of at least 70 per cent of the appeals pending.

The CBDT hopes that abidance by these targets will dispose of about 1,63,000 appeals and unlock tax demands of about ₹4.5 lakh crore.

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