Closing the tax litigation tap

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Routine disputes taken to CIT (appeals) and tribunal, arising from an order passed by the assessing officer, is the bane of the system.

Over the past few years, the high-profile names and huge numbers involved in tax litigation have drawn much attention and discussion. So, what is going on at the various tax litigation forums?

Currently the Dispute Resolution Panel or Commissioner of Income Tax (Appeals), Income Tax Appellate Tribunal, High Court, or Supreme Court are available for dispute resolution. The Authority for Advance Rulings and Mutual Agreement Procedures are other options.

Based on a discussion paper released in March 2013 by the Federation of Indian Chambers of Commerce and Industry, there were approximately 2.6 lakh disputes involving Rs 4.37 lakh crore as of December 2011. Of these, about 2.23 lakh disputes (Rs 3.74 lakh crore) are pending before CIT(A) and ITAT. About 30,000 disputes are before the High Courts, and 6,000 await the Supreme Court’s verdict — together involving Rs 62,000 crore.

A matter gets resolved at the ITAT level in about five years from the original assessment. The court process could then take another five to 10 years. This takes up a lot of time for all stakeholders (assessees, consultants, and the Tax Department).

Most businessmen and advisors prefer to avoid protracted and non-defensible litigation. This is the stated objective of the Government as well.

Towards closure

Routine disputes taken to the CIT(A) and ITAT, arising from an order passed by the assessing officer, is the bane of the system. Given the availability of technology and information, most taxpayers believe the problem should be resolved at this level. Inadequate guidance and accountability, coupled with a fear of revenue audit objections, result in the dispute being referred to a higher level. Here are a few suggestions to help reduce tax litigation and achieve closure:

An assessing officer gives a clear finding in every order to show why the matter ought to be litigated, despite a preceding favourable order from a tax tribunal or court.

A Commissioner of Income Tax approves every order where the tax demand exceeds, say, Rs 20 lakh.

No notices for re-assessment will be issued based on an audit objection or after three years.

The Tax Department withdraws all appeals where the taxpayer has favourable verdicts from both CIT(A) and ITAT. But if it does pursue the matter, it would bear all costs of counsel and management. Similar rules could be considered for the taxpayer too.

The tax law is amended to say that there will be no retrospective amendments to negate any judgement of a special bench of the ITAT, High Court or Supreme Court. (Over the last six years, about 165 retrospective amendments have been enacted.)

Benefit of subsequent judicial pronouncements is given to all taxpayers.

Double the number of CIT(A)s across the country.

Creation of additional AAR benches in Mumbai and Bengaluru.

The above suggestions do not need any new enactment or drastic reform measures. Comments from all stakeholders could be invited and the measures could be a part of law and practice in a few months. Together with some recent measures, such as the introduction of the advance pricing agreement programme, safe harbour rules and a circular on tax holiday, these measures would boost the confidence of business and investors.

Subham Kumar, Assistant Manager, contributed to the article.

The author is Executive Director – Tax and Regulatory Services, PwC India

Published on October 20, 2013

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