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Disputed income-tax claims surge towards ₹10-lakh crore mark

Vivek Ananth BL Research Bureau | Updated on December 23, 2019 Published on December 22, 2019

This is an increase of ₹3.7-lakh crore since the end of FY18; frivolous demands on the rise

While the government has set aggressive targets for tax officials to shore up revenue in the remaining months of this fiscal year, cases of frivolous income tax demands continue to rise and now make up nearly 99 per cent of uncontested income-tax demands issued by the Income Tax Department.

At the same time, the value of disputed income-tax cases has also surged sharply by ₹3.73 lakh crore since the end of FY18, to reach nearly ₹10 lakh crore.

‘Difficult to recover’

According to a report of the Parliamentary Standing Committee on Finance, as of September 30, 2019, the Centre has raised demands worth ₹12,30,201 crore out of which ₹12,17,749 crore are difficult to recover.

A report from the Comptroller and Auditor General had chastised the government when the audit of the Department of Revenue found that the Income Tax Department was raising frivolous tax demands that are not recoverable. At the end of 2016-17, the Income Tax Department had raised demands worth ₹10.4 lakh crore. The CAG had said that 98.6 per cent of these income tax demands are ‘difficult to recover’.

 

 

The Income Tax Department raises many demands that are not expected to yield any revenue. This is by its own admission to the Standing Committee on Finance. The CAG, in its 2017 report, had urged that these income-tax demands be written off as not recoverable.

The Income Tax Department on its part routinely replies to the Standing Committee on Finance that it can’t trace the assessees to whom it has issued demand notices. It has also claimed it has been restrained by authorities from pursuing these cases or that assessees have inadequate assets.

In its recommendations and observations, the committee said: “When the government is exploring all avenues, including disinvestment, etc. to mobilise revenue, it is necessary that tax arrears, which can be legally recovered, should be given utmost priority and realised in a stipulated time-frame under a concrete action plan.”

Disputed tax arrears

Another problem that has been brewing for a while now at the Income Tax Department is the large amount of disputed income tax demands that it classifies as ‘arrears under dispute’. These are cases stuck in appeals at various stages till the Supreme Court.

According to Budget documents, the total income tax dues that were not recovered because they were stuck in appeals from tribunals to the Supreme Court at the end of 2017-18 stood at ₹6,23,539 crore. These include arrears of income tax from corporate and non-corporate assessees.

Nearly half of this amount relates to cases that have been pending for more than two years.

As of September 30, 2019, the disputed income tax dues in arrears had jumped 60 per cent in 18 months to ₹9.96 lakh crore, the Standing Committee on Finance’s report shows. Cases that have been stuck in appeals for over two years rose 13.5 per cent in the last 18 months to ₹3,58,397 crore.

While the government is doing its best to reduce the fear of tax terrorism, when it comes to dealing with income tax assessees and recovery of tax demands, the high value of disputed income tax cases shows that there is much to be done to remedy the situation.

Published on December 22, 2019
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